Correlation Between RBC Quant and RBC Target

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

By analyzing existing cross correlation between RBC Quant EAFE and RBC Target 2025, you can compare the effects of market volatilities on RBC Quant and RBC Target 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 Quant with a short position of RBC Target. Check out your portfolio center. Please also check ongoing floating volatility patterns of RBC Quant and RBC Target.

Diversification Opportunities for RBC Quant and RBC Target

-0.17

Correlation Coefficient

RBC Quant  RBC Target

Good diversification

The 3 months correlation between RBC and RBC is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding RBC Quant EAFE and RBC Target 2025 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RBC Target 2025 and RBC Quant 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 Quant EAFE are associated (or correlated) with RBC Target. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RBC Target 2025 has no effect on the direction of RBC Quant i.e., RBC Quant and RBC Target go up and down completely randomly.

Pair Corralation between RBC Quant and RBC Target

Assuming the 90 days trading horizon RBC Quant EAFE is expected to generate 10.15 times more return on investment than RBC Target. However, RBC Quant is 10.15 times more volatile than RBC Target 2025. It trades about 0.04 of its potential returns per unit of risk. RBC Target 2025 is currently generating about 0.27 per unit of risk. If you would invest  2,860  in RBC Quant EAFE on September 5, 2024 and sell it today you would earn a total of  44.00  from holding RBC Quant EAFE or generate 1.54% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

RBC Quant EAFE  vs.  RBC Target 2025

RBC Quant EAFE

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in RBC Quant EAFE are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, RBC Quant is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

RBC Target 2025

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in RBC Target 2025 are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, RBC Target is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with RBC Quant and RBC Target

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

The idea behind RBC Quant EAFE and RBC Target 2025 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.

Check out your portfolio center.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.