Correlation Between NI Holdings and RBC Bearings

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

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

Diversification Opportunities for NI Holdings and RBC Bearings

-0.54

Correlation Coefficient

NI Holdings  RBC Bearings

Excellent diversification

The 3 months correlation between NODK and RBC is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding NI Holdings 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 NI Holdings 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 NI Holdings 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 NI Holdings i.e., NI Holdings and RBC Bearings go up and down completely randomly.

Pair Corralation between NI Holdings and RBC Bearings

Given the investment horizon of 90 days NI Holdings is expected to generate 0.84 times more return on investment than RBC Bearings. However, NI Holdings is 1.19 times less risky than RBC Bearings. It trades about -0.2 of its potential returns per unit of risk. RBC Bearings Incorporated is currently generating about -0.36 per unit of risk. If you would invest  1,537  in NI Holdings on January 20, 2024 and sell it today you would lose (69.00) from holding NI Holdings or give up 4.49% of portfolio value over 90 days.

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

NI Holdings  vs.  RBC Bearings Incorporated

NI Holdings

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NI Holdings are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating fundamental indicators, NI Holdings 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 NI Holdings and RBC Bearings

The main advantage of trading using opposite NI Holdings and RBC Bearings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NI Holdings 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 NI Holdings 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.