Correlation Between Kennametal and RBC Bearings

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

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

Diversification Opportunities for Kennametal and RBC Bearings

0.52

Correlation Coefficient

Kennametal  RBC Bearings

Very weak diversification

The 3 months correlation between Kennametal and RBC is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Kennametal 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 Kennametal 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 Kennametal 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 Kennametal i.e., Kennametal and RBC Bearings go up and down completely randomly.

Pair Corralation between Kennametal and RBC Bearings

Considering the 90-day investment horizon Kennametal is expected to generate 1.3 times more return on investment than RBC Bearings. However, Kennametal is 1.3 times more volatile than RBC Bearings Incorporated. It trades about -0.07 of its potential returns per unit of risk. RBC Bearings Incorporated is currently generating about -0.15 per unit of risk. If you would invest  2,518  in Kennametal on January 31, 2024 and sell it today you would lose (113.00) from holding Kennametal or give up 4.49% of portfolio value over 90 days.

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

Kennametal  vs.  RBC Bearings Incorporated

Kennametal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kennametal has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable primary indicators, Kennametal is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

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 latest unfluctuating performance, the Stock's fundamental drivers remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Kennametal and RBC Bearings

The main advantage of trading using opposite Kennametal and RBC Bearings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kennametal 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 Kennametal 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.