Correlation Between Financial and RBC Discount

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

By analyzing existing cross correlation between Financial 15 Split and RBC Discount Bond, you can compare the effects of market volatilities on Financial and RBC Discount 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 Financial with a short position of RBC Discount. Check out your portfolio center. Please also check ongoing floating volatility patterns of Financial and RBC Discount.

Diversification Opportunities for Financial and RBC Discount

0.88

Correlation Coefficient

Financial  RBC Discount

Very poor diversification

The 3 months correlation between Financial and RBC is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Financial 15 Split and RBC Discount Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RBC Discount Bond and Financial 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 Financial 15 Split are associated (or correlated) with RBC Discount. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RBC Discount Bond has no effect on the direction of Financial i.e., Financial and RBC Discount go up and down completely randomly.

Pair Corralation between Financial and RBC Discount

Assuming the 90 days trading horizon Financial 15 Split is expected to generate 0.86 times more return on investment than RBC Discount. However, Financial 15 Split is 1.16 times less risky than RBC Discount. It trades about 0.25 of its potential returns per unit of risk. RBC Discount Bond is currently generating about 0.11 per unit of risk. If you would invest  852.00  in Financial 15 Split on October 4, 2024 and sell it today you would earn a total of  217.00  from holding Financial 15 Split or generate 25.47% return on investment over 90 days.

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

Financial 15 Split  vs.  RBC Discount Bond

Financial 15 Split

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Financial 15 Split are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Financial is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

RBC Discount Bond

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in RBC Discount Bond are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, RBC Discount is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Financial and RBC Discount

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

The idea behind Financial 15 Split and RBC Discount Bond 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.