Correlation Between Microsoft and RBC Bearings
Can any of the company-specific risk be diversified away by investing in both Microsoft 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 Microsoft and RBC Bearings into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and RBC Bearings Incorporated, you can compare the effects of market volatilities on Microsoft 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 Microsoft with a short position of RBC Bearings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and RBC Bearings.
Diversification Opportunities for Microsoft and RBC Bearings
0.45 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Microsoft and RBC is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and RBC Bearings Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RBC Bearings and Microsoft 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 Microsoft 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 Microsoft i.e., Microsoft and RBC Bearings go up and down completely randomly.
Pair Corralation between Microsoft and RBC Bearings
Given the investment horizon of 90 days Microsoft is expected to generate 0.69 times more return on investment than RBC Bearings. However, Microsoft is 1.44 times less risky than RBC Bearings. It trades about 0.51 of its potential returns per unit of risk. RBC Bearings Incorporated is currently generating about 0.01 per unit of risk. If you would invest 41,493 in Microsoft on September 18, 2024 and sell it today you would earn a total of 3,953 from holding Microsoft or generate 9.53% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. RBC Bearings Incorporated
Performance |
| Timeline |
| Microsoft |
| RBC Bearings |
Microsoft and RBC Bearings Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and RBC Bearings
The main advantage of trading using opposite Microsoft and RBC Bearings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft 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.| Microsoft vs. Global Blue Group | Microsoft vs. Aurora Mobile | Microsoft vs. Marqeta | Microsoft vs. Nextnav Acquisition Corp |
| RBC Bearings vs. Lincoln Electric Holdings | RBC Bearings vs. Kennametal | RBC Bearings vs. Toro Co | RBC Bearings vs. Snap On |
Check out your portfolio center.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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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