Correlation Between Small Cap and Rbc China

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

By analyzing existing cross correlation between Small Cap Equity and Rbc China Equity, you can compare the effects of market volatilities on Small Cap and Rbc China 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 Small Cap with a short position of Rbc China. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Rbc China.

Diversification Opportunities for Small Cap and Rbc China

0.28

Correlation Coefficient

Small Cap  Rbc China

Modest diversification

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

Pair Corralation between Small Cap and Rbc China

Assuming the 90 days horizon Small Cap Equity is expected to generate 0.76 times more return on investment than Rbc China. However, Small Cap Equity is 1.32 times less risky than Rbc China. It trades about 0.19 of its potential returns per unit of risk. Rbc China Equity is currently generating about -0.08 per unit of risk. If you would invest  1,805  in Small Cap Equity on October 25, 2024 and sell it today you would earn a total of  63.00  from holding Small Cap Equity or generate 3.49% return on investment over 90 days.

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

Small Cap Equity  vs.  Rbc China Equity

Small Cap Equity

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Equity are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Small Cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Rbc China Equity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rbc China Equity has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Small Cap and Rbc China

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

The idea behind Small Cap Equity and Rbc China 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.