Correlation Between Olympic Steel and RBC Bearings

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Can any of the company-specific risk be diversified away by investing in both Olympic Steel 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 Olympic Steel and RBC Bearings into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Olympic Steel and RBC Bearings Incorporated, you can compare the effects of market volatilities on Olympic Steel 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 Olympic Steel with a short position of RBC Bearings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Olympic Steel and RBC Bearings.

Diversification Opportunities for Olympic Steel and RBC Bearings

0.78
  Correlation Coefficient

Poor diversification

The 3 months correlation between Olympic and RBC is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Olympic Steel and RBC Bearings Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RBC Bearings and Olympic Steel 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 Olympic Steel 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 Olympic Steel i.e., Olympic Steel and RBC Bearings go up and down completely randomly.

Pair Corralation between Olympic Steel and RBC Bearings

Given the investment horizon of 90 days Olympic Steel is expected to generate 1.04 times less return on investment than RBC Bearings. In addition to that, Olympic Steel is 1.56 times more volatile than RBC Bearings Incorporated. It trades about 0.23 of its total potential returns per unit of risk. RBC Bearings Incorporated is currently generating about 0.37 per unit of volatility. If you would invest  28,035  in RBC Bearings Incorporated on September 1, 2024 and sell it today you would earn a total of  5,476  from holding RBC Bearings Incorporated or generate 19.53% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Olympic Steel  vs.  RBC Bearings Incorporated

 Performance 
       Timeline  
Olympic Steel 

Risk-Adjusted Performance

7 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Olympic Steel are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Olympic Steel unveiled solid returns over the last few months and may actually be approaching a breakup point.
RBC Bearings 

Risk-Adjusted Performance

11 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in RBC Bearings Incorporated are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating fundamental drivers, RBC Bearings exhibited solid returns over the last few months and may actually be approaching a breakup point.

Olympic Steel and RBC Bearings Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Olympic Steel and RBC Bearings

The main advantage of trading using opposite Olympic Steel and RBC Bearings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Olympic Steel 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 Olympic Steel 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.
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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.

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