Correlation Between RBC Quant and Vanguard FTSE

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

By analyzing existing cross correlation between RBC Quant European and Vanguard FTSE Emerging, you can compare the effects of market volatilities on RBC Quant and Vanguard FTSE 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 Vanguard FTSE. Check out your portfolio center. Please also check ongoing floating volatility patterns of RBC Quant and Vanguard FTSE.

Diversification Opportunities for RBC Quant and Vanguard FTSE

-0.18

Correlation Coefficient

RBC Quant  Vanguard FTSE

Good diversification

The 3 months correlation between RBC and Vanguard is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding RBC Quant European and Vanguard FTSE Emerging in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard FTSE Emerging 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 European are associated (or correlated) with Vanguard FTSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard FTSE Emerging has no effect on the direction of RBC Quant i.e., RBC Quant and Vanguard FTSE go up and down completely randomly.

Pair Corralation between RBC Quant and Vanguard FTSE

Assuming the 90 days trading horizon RBC Quant European is expected to under-perform the Vanguard FTSE. But the etf apears to be less risky and, when comparing its historical volatility, RBC Quant European is 1.27 times less risky than Vanguard FTSE. The etf trades about -0.08 of its potential returns per unit of risk. The Vanguard FTSE Emerging is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  3,579  in Vanguard FTSE Emerging on September 3, 2024 and sell it today you would earn a total of  269.00  from holding Vanguard FTSE Emerging or generate 7.52% return on investment over 90 days.

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

RBC Quant European  vs.  Vanguard FTSE Emerging

RBC Quant European

Risk-Adjusted Performance

0 of 100

Very Weak

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

Vanguard FTSE Emerging

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard FTSE Emerging are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, Vanguard FTSE may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with RBC Quant and Vanguard FTSE

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

The idea behind RBC Quant European and Vanguard FTSE Emerging 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.