Correlation Between RBC European and RBC Select

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

Diversification Opportunities for RBC European and RBC Select

-0.42

Correlation Coefficient

RBC European  RBC Select

Very good diversification

The 3 months correlation between RBC and RBC is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding RBC European Mid Cap 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 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 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 European i.e., RBC European and RBC Select go up and down completely randomly.

Pair Corralation between RBC European and RBC Select

Assuming the 90 days trading horizon RBC European Mid Cap is expected to under-perform the RBC Select. In addition to that, RBC European is 2.09 times more volatile than RBC Select Balanced. It trades about -0.09 of its total potential returns per unit of risk. RBC Select Balanced is currently generating about 0.23 per unit of volatility. If you would invest  3,351  in RBC Select Balanced on August 31, 2024 and sell it today you would earn a total of  167.00  from holding RBC Select Balanced or generate 4.98% return on investment over 90 days.

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

RBC European Mid Cap  vs.  RBC Select Balanced

RBC European Mid

Risk-Adjusted Performance

0 of 100

Very Weak

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

The main advantage of trading using opposite RBC European and RBC Select positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if RBC European 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 European Mid Cap 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.

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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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.