Correlation Between Brompton European and RBC Canadian

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

Diversification Opportunities for Brompton European and RBC Canadian

0.28

Correlation Coefficient

Brompton European  RBC Canadian

Modest diversification

The 3 months correlation between Brompton and RBC is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Brompton European Dividend 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 Brompton 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 Brompton European Dividend 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 Brompton European i.e., Brompton European and RBC Canadian go up and down completely randomly.

Pair Corralation between Brompton European and RBC Canadian

Assuming the 90 days trading horizon Brompton European Dividend is expected to generate 1.8 times more return on investment than RBC Canadian. However, Brompton European is 1.8 times more volatile than RBC Canadian Equity. It trades about 0.08 of its potential returns per unit of risk. RBC Canadian Equity is currently generating about -0.05 per unit of risk. If you would invest  1,054  in Brompton European Dividend on December 3, 2024 and sell it today you would earn a total of  51.00  from holding Brompton European Dividend or generate 4.84% return on investment over 90 days.

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

Brompton European Dividend  vs.  RBC Canadian Equity

Brompton European

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Brompton European Dividend are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Brompton European is not utilizing all of its potentials. The recent stock price disarray, 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 Brompton European and RBC Canadian

The main advantage of trading using opposite Brompton European and RBC Canadian positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Brompton 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 Brompton European Dividend 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.