Correlation Between Western Asset and Royal Bank

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

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

Diversification Opportunities for Western Asset and Royal Bank

0.19

Correlation Coefficient

Western Asset  Royal Bank

Average diversification

The 3 months correlation between Western and Royal is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset Investment and Royal Bank of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royal Bank and Western Asset 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 Western Asset Investment 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 Western Asset i.e., Western Asset and Royal Bank go up and down completely randomly.

Pair Corralation between Western Asset and Royal Bank

Considering the 90-day investment horizon Western Asset is expected to generate 33.03 times less return on investment than Royal Bank. But when comparing it to its historical volatility, Western Asset Investment is 2.06 times less risky than Royal Bank. It trades about 0.01 of its potential returns per unit of risk. Royal Bank of is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  9,509  in Royal Bank of on October 7, 2024 and sell it today you would earn a total of  2,534  from holding Royal Bank of or generate 26.65% return on investment over 90 days.

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

Western Asset Investment  vs.  Royal Bank of

Western Asset Investment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Western Asset Investment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical and fundamental indicators, Western Asset is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Royal Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Royal Bank of has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Royal Bank is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Western Asset and Royal Bank

The main advantage of trading using opposite Western Asset and Royal Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Asset 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 Western Asset Investment 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.