Correlation Between Rbc Emerging and Small Cap

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

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

Diversification Opportunities for Rbc Emerging and Small Cap

-0.12

Correlation Coefficient

Rbc Emerging  Small Cap

Good diversification

The 3 months correlation between Rbc and Small is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Rbc Emerging Markets and Small Cap Stock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Stock and Rbc Emerging 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 Rbc Emerging Markets are associated (or correlated) with Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Stock has no effect on the direction of Rbc Emerging i.e., Rbc Emerging and Small Cap go up and down completely randomly.

Pair Corralation between Rbc Emerging and Small Cap

Assuming the 90 days horizon Rbc Emerging Markets is expected to generate 0.88 times more return on investment than Small Cap. However, Rbc Emerging Markets is 1.13 times less risky than Small Cap. It trades about -0.17 of its potential returns per unit of risk. Small Cap Stock is currently generating about -0.42 per unit of risk. If you would invest  837.00  in Rbc Emerging Markets on September 26, 2024 and sell it today you would lose (42.00) from holding Rbc Emerging Markets or give up 5.02% of portfolio value over 90 days.

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

Rbc Emerging Markets  vs.  Small Cap Stock

Rbc Emerging Markets

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rbc Emerging Markets has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Small Cap Stock

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Small Cap Stock has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Small Cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Rbc Emerging and Small Cap

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

The idea behind Rbc Emerging Markets and Small Cap Stock 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.