Correlation Between Arch Capital and RBC Bearings

Can any of the company-specific risk be diversified away by investing in both Arch Capital 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 Arch Capital and RBC Bearings into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Arch Capital Group and RBC Bearings Incorporated, you can compare the effects of market volatilities on Arch Capital 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 Arch Capital with a short position of RBC Bearings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Arch Capital and RBC Bearings.

Diversification Opportunities for Arch Capital and RBC Bearings

-0.53

Correlation Coefficient

Arch Capital  RBC Bearings

Excellent diversification

The 3 months correlation between Arch and RBC is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Arch Capital Group and RBC Bearings Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RBC Bearings rporated and Arch Capital 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 Arch Capital Group 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 rporated has no effect on the direction of Arch Capital i.e., Arch Capital and RBC Bearings go up and down completely randomly.

Pair Corralation between Arch Capital and RBC Bearings

Given the investment horizon of 90 days Arch Capital Group is expected to generate 0.82 times more return on investment than RBC Bearings. However, Arch Capital Group is 1.22 times less risky than RBC Bearings. It trades about 0.1 of its potential returns per unit of risk. RBC Bearings Incorporated is currently generating about 0.05 per unit of risk. If you would invest  4,588  in Arch Capital Group on January 20, 2024 and sell it today you would earn a total of  4,705  from holding Arch Capital Group or generate 102.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Arch Capital Group  vs.  RBC Bearings Incorporated

Arch Capital Group

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Arch Capital Group are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite quite weak technical and fundamental indicators, Arch Capital disclosed solid returns over the last few months and may actually be approaching a breakup point.

RBC Bearings rporated

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 unfluctuating performance in the last few months, the Stock's fundamental drivers remain rather sound which may send shares a bit higher in May 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Arch Capital and RBC Bearings

The main advantage of trading using opposite Arch Capital and RBC Bearings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Arch Capital 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 Arch Capital Group 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.