Correlation Between RBC European and RBC Canadian

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

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

Diversification Opportunities for RBC European and RBC Canadian

0.2

Correlation Coefficient

RBC European  RBC Canadian

Modest diversification

The 3 months correlation between RBC and RBC is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding RBC European Mid Cap and RBC Canadian Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RBC Canadian Equity and RBC European 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 European Mid Cap are associated (or correlated) with RBC Canadian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RBC Canadian Equity has no effect on the direction of RBC European i.e., RBC European and RBC Canadian go up and down completely randomly.

Pair Corralation between RBC European and RBC Canadian

Assuming the 90 days trading horizon RBC European Mid Cap is expected to generate 0.92 times more return on investment than RBC Canadian. However, RBC European Mid Cap is 1.08 times less risky than RBC Canadian. It trades about 0.1 of its potential returns per unit of risk. RBC Canadian Equity is currently generating about -0.1 per unit of risk. If you would invest  1,355  in RBC European Mid Cap on November 29, 2024 and sell it today you would earn a total of  59.00  from holding RBC European Mid Cap or generate 4.35% return on investment over 90 days.

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

RBC European Mid Cap  vs.  RBC Canadian Equity

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 7 (%) 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 current stock price disturbance, may contribute to short-term losses for the investors.

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.

Pair Trading with RBC European and RBC Canadian

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

The idea behind RBC European Mid Cap and RBC Canadian Equity 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.