Correlation Between RBC Canadian and Solar Alliance

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

Diversification Opportunities for RBC Canadian and Solar Alliance

0.33

Correlation Coefficient

RBC Canadian  Solar Alliance

Weak diversification

The 3 months correlation between RBC and Solar is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding RBC Canadian Equity and Solar Alliance Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Solar Alliance Energy 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 Solar Alliance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Solar Alliance Energy has no effect on the direction of RBC Canadian i.e., RBC Canadian and Solar Alliance go up and down completely randomly.

Pair Corralation between RBC Canadian and Solar Alliance

Assuming the 90 days trading horizon RBC Canadian Equity is expected to under-perform the Solar Alliance. But the fund apears to be less risky and, when comparing its historical volatility, RBC Canadian Equity is 22.19 times less risky than Solar Alliance. The fund trades about -0.05 of its potential returns per unit of risk. The Solar Alliance Energy is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  3.00  in Solar Alliance Energy on December 3, 2024 and sell it today you would lose (1.00) from holding Solar Alliance Energy or give up 33.33% of portfolio value over 90 days.

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

RBC Canadian Equity  vs.  Solar Alliance Energy

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 recent stock price disturbance, may contribute to short-term losses for the investors.

Solar Alliance Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Solar Alliance Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly abnormal essential indicators, Solar Alliance may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with RBC Canadian and Solar Alliance

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

The idea behind RBC Canadian Equity and Solar Alliance Energy 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.