Correlation Between Monks Investment and Royal Bank

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

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

Diversification Opportunities for Monks Investment and Royal Bank

0.64

Correlation Coefficient

Monks Investment  Royal Bank

Poor diversification

The 3 months correlation between Monks and Royal is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Monks Investment Trust and Royal Bank of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royal Bank and Monks Investment 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 Monks Investment Trust 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 Monks Investment i.e., Monks Investment and Royal Bank go up and down completely randomly.

Pair Corralation between Monks Investment and Royal Bank

Assuming the 90 days trading horizon Monks Investment is expected to generate 1.25 times less return on investment than Royal Bank. But when comparing it to its historical volatility, Monks Investment Trust is 1.13 times less risky than Royal Bank. It trades about 0.1 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  8,527  in Royal Bank of on September 12, 2024 and sell it today you would earn a total of  4,110  from holding Royal Bank of or generate 48.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.4%
Values	Daily Returns

Monks Investment Trust  vs.  Royal Bank of

Monks Investment Trust

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Monks Investment Trust are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Monks Investment may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Royal Bank

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Royal Bank of are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Royal Bank is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Monks Investment and Royal Bank

The main advantage of trading using opposite Monks Investment and Royal Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Monks Investment 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 Monks Investment Trust 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.