Correlation Between Canadian Natural and Royal Bank

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

By analyzing existing cross correlation between Canadian Natural Resources and Royal Bank of, you can compare the effects of market volatilities on Canadian Natural and Royal Bank 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 Canadian Natural with a short position of Royal Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Canadian Natural and Royal Bank.

Diversification Opportunities for Canadian Natural and Royal Bank

0.28

Correlation Coefficient

Canadian Natural  Royal Bank

Modest diversification

The 3 months correlation between Canadian and Royal is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Natural Resources and Royal Bank of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royal Bank and Canadian Natural 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 Canadian Natural Resources are associated (or correlated) with Royal Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royal Bank has no effect on the direction of Canadian Natural i.e., Canadian Natural and Royal Bank go up and down completely randomly.

Pair Corralation between Canadian Natural and Royal Bank

Assuming the 90 days trading horizon Canadian Natural is expected to generate 2.8 times less return on investment than Royal Bank. In addition to that, Canadian Natural is 2.35 times more volatile than Royal Bank of. It trades about 0.03 of its total potential returns per unit of risk. Royal Bank of is currently generating about 0.18 per unit of volatility. If you would invest  16,241  in Royal Bank of on September 2, 2024 and sell it today you would earn a total of  1,375  from holding Royal Bank of or generate 8.47% return on investment over 90 days.

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

Canadian Natural Resources  vs.  Royal Bank of

Canadian Natural Res

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Canadian Natural Resources are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Canadian Natural is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Royal Bank

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Royal Bank of are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Royal Bank may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Canadian Natural and Royal Bank

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

The idea behind Canadian Natural Resources and Royal Bank of 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.