Correlation Between RBC Select and TD Index

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

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

Diversification Opportunities for RBC Select and TD Index

0.25

Correlation Coefficient

RBC Select  TD Index

Modest diversification

The 3 months correlation between RBC and TDB902 is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding RBC Select Balanced and TD Index Fund E in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TD Index Fund and RBC Select 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 Select Balanced are associated (or correlated) with TD Index. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TD Index Fund has no effect on the direction of RBC Select i.e., RBC Select and TD Index go up and down completely randomly.

Pair Corralation between RBC Select and TD Index

Assuming the 90 days trading horizon RBC Select Balanced is expected to under-perform the TD Index. But the fund apears to be less risky and, when comparing its historical volatility, RBC Select Balanced is 1.33 times less risky than TD Index. The fund trades about -0.09 of its potential returns per unit of risk. The TD Index Fund E is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  15,086  in TD Index Fund E on December 3, 2024 and sell it today you would lose (205.00) from holding TD Index Fund E or give up 1.36% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

RBC Select Balanced  vs.  TD Index Fund E

RBC Select Balanced

Risk-Adjusted Performance

Very Weak

Over the last 90 days RBC Select Balanced has generated negative risk-adjusted returns adding no value to fund investors. 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.

TD Index Fund

Risk-Adjusted Performance

Very Weak

Over the last 90 days TD Index Fund E has generated negative risk-adjusted returns adding no value to fund investors. Despite somewhat strong fundamental drivers, TD Index 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 Select and TD Index

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

The idea behind RBC Select Balanced and TD Index Fund E 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.