Correlation Between National Bank and Diversified Royalty

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

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

Diversification Opportunities for National Bank and Diversified Royalty

-0.06

Correlation Coefficient

National Bank  Diversified Royalty

Good diversification

The 3 months correlation between National and Diversified is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding National Bank of and Diversified Royalty Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diversified Royalty Corp and National Bank 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 National Bank of are associated (or correlated) with Diversified Royalty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diversified Royalty Corp has no effect on the direction of National Bank i.e., National Bank and Diversified Royalty go up and down completely randomly.

Pair Corralation between National Bank and Diversified Royalty

Assuming the 90 days trading horizon National Bank of is expected to generate 0.46 times more return on investment than Diversified Royalty. However, National Bank of is 2.17 times less risky than Diversified Royalty. It trades about 0.0 of its potential returns per unit of risk. Diversified Royalty Corp is currently generating about -0.04 per unit of risk. If you would invest  2,611  in National Bank of on December 26, 2024 and sell it today you would lose (1.00) from holding National Bank of or give up 0.04% of portfolio value over 90 days.

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

National Bank of  vs.  Diversified Royalty Corp

National Bank

Risk-Adjusted Performance

Very Weak

Over the last 90 days National Bank of has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, National Bank is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Diversified Royalty Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Diversified Royalty Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Diversified Royalty is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with National Bank and Diversified Royalty

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

The idea behind National Bank of and Diversified Royalty Corp 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.