Correlation Between Bloom Select and RBC Canadian

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

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

Diversification Opportunities for Bloom Select and RBC Canadian

0.17

Correlation Coefficient

Bloom Select  RBC Canadian

Average diversification

The 3 months correlation between Bloom and RBC is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Bloom Select Income 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 Bloom 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 Bloom Select Income 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 Bloom Select i.e., Bloom Select and RBC Canadian go up and down completely randomly.

Pair Corralation between Bloom Select and RBC Canadian

Assuming the 90 days trading horizon Bloom Select Income is expected to under-perform the RBC Canadian. In addition to that, Bloom Select is 1.25 times more volatile than RBC Canadian Equity. It trades about -0.08 of its total potential returns per unit of risk. RBC Canadian Equity is currently generating about 0.05 per unit of volatility. If you would invest  3,307  in RBC Canadian Equity on December 3, 2024 and sell it today you would earn a total of  37.00  from holding RBC Canadian Equity or generate 1.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	97.62%
Values	Daily Returns

Bloom Select Income  vs.  RBC Canadian Equity

Bloom Select Income

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bloom Select Income has generated negative risk-adjusted returns adding no value to fund investors. Despite somewhat strong fundamental drivers, Bloom Select 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 recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Bloom Select and RBC Canadian

The main advantage of trading using opposite Bloom Select and RBC Canadian positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bloom Select 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 Bloom Select Income 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.