Correlation Between RBC Canadian and RBC European

Can any of the company-specific risk be diversified away by investing in both RBC Canadian and RBC European 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 European 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 European Mid Cap, you can compare the effects of market volatilities on RBC Canadian and RBC European 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 European. Check out your portfolio center. Please also check ongoing floating volatility patterns of RBC Canadian and RBC European.

Diversification Opportunities for RBC Canadian and RBC European

0.17

Correlation Coefficient

RBC Canadian  RBC European

Average diversification

The 3 months correlation between RBC and RBC is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding RBC Canadian Equity and RBC European Mid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RBC European Mid 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 European. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RBC European Mid has no effect on the direction of RBC Canadian i.e., RBC Canadian and RBC European go up and down completely randomly.

Pair Corralation between RBC Canadian and RBC European

Assuming the 90 days trading horizon RBC Canadian Equity is expected to under-perform the RBC European. In addition to that, RBC Canadian is 1.1 times more volatile than RBC European Mid Cap. It trades about -0.03 of its total potential returns per unit of risk. RBC European Mid Cap is currently generating about 0.13 per unit of volatility. If you would invest  1,325  in RBC European Mid Cap on November 20, 2024 and sell it today you would earn a total of  76.00  from holding RBC European Mid Cap or generate 5.74% return on investment over 90 days.

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

RBC Canadian Equity  vs.  RBC European Mid Cap

RBC Canadian Equity

Risk-Adjusted Performance

Very Weak

Over the last 90 days RBC Canadian Equity has generated negative risk-adjusted returns adding no value to fund investors. Despite somewhat strong basic indicators, RBC Canadian is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

RBC European Mid

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in RBC European Mid Cap are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. Despite somewhat strong basic indicators, RBC European is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with RBC Canadian and RBC European

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

The idea behind RBC Canadian Equity and RBC European Mid Cap 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.