Correlation Between RBC Canadian and RBC Select

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

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

Diversification Opportunities for RBC Canadian and RBC Select

0.96

Correlation Coefficient

RBC Canadian  RBC Select

Almost no diversification

The 3 months correlation between RBC and RBC is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding RBC Canadian Equity and RBC Select Balanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RBC Select Balanced and RBC Canadian 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 RBC Canadian Equity are associated (or correlated) with RBC Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RBC Select Balanced has no effect on the direction of RBC Canadian i.e., RBC Canadian and RBC Select go up and down completely randomly.

Pair Corralation between RBC Canadian and RBC Select

Assuming the 90 days trading horizon RBC Canadian Equity is expected to generate 1.44 times more return on investment than RBC Select. However, RBC Canadian is 1.44 times more volatile than RBC Select Balanced. It trades about 0.32 of its potential returns per unit of risk. RBC Select Balanced is currently generating about 0.23 per unit of risk. If you would invest  2,884  in RBC Canadian Equity on August 31, 2024 and sell it today you would earn a total of  295.00  from holding RBC Canadian Equity or generate 10.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.39%
Values	Daily Returns

RBC Canadian Equity  vs.  RBC Select Balanced

RBC Canadian Equity

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in RBC Canadian Equity are ranked lower than 25 (%) of all funds and portfolios of funds over the last 90 days. Despite somewhat unfluctuating basic indicators, RBC Canadian may actually be approaching a critical reversion point that can send shares even higher in December 2024.

RBC Select Balanced

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in RBC Select Balanced are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. Despite somewhat strong basic indicators, RBC Select is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with RBC Canadian and RBC Select

The main advantage of trading using opposite RBC Canadian and RBC Select positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if RBC Canadian position performs unexpectedly, RBC Select 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 Select will offset losses from the drop in RBC Select's long position.

The idea behind RBC Canadian Equity and RBC Select Balanced 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.