Correlation Between ABB and RBC Bearings

Can any of the company-specific risk be diversified away by investing in both ABB and RBC Bearings at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining ABB and RBC Bearings into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between ABB Ltd ADR and RBC Bearings Incorporated, you can compare the effects of market volatilities on ABB and RBC Bearings and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in ABB with a short position of RBC Bearings. Check out your portfolio center. Please also check ongoing floating volatility patterns of ABB and RBC Bearings.

Diversification Opportunities for ABB and RBC Bearings

0.21

Correlation Coefficient

ABB  RBC Bearings

Modest diversification

The 3 months correlation between ABB and RBC is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding ABB Ltd ADR and RBC Bearings Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RBC Bearings and ABB is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on ABB Ltd ADR are associated (or correlated) with RBC Bearings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RBC Bearings has no effect on the direction of ABB i.e., ABB and RBC Bearings go up and down completely randomly.

Pair Corralation between ABB and RBC Bearings

If you would invest  3,900  in ABB Ltd ADR on March 7, 2024 and sell it today you would earn a total of  0.00  from holding ABB Ltd ADR or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	1.59%
Values	Daily Returns

ABB Ltd ADR  vs.  RBC Bearings Incorporated

ABB Ltd ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ABB Ltd ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, ABB is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

RBC Bearings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days RBC Bearings Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental drivers remain rather sound which may send shares a bit higher in July 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with ABB and RBC Bearings

The main advantage of trading using opposite ABB and RBC Bearings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ABB position performs unexpectedly, RBC Bearings can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in RBC Bearings will offset losses from the drop in RBC Bearings' long position.

The idea behind ABB Ltd ADR and RBC Bearings Incorporated pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.