Correlation Between Rbc Small and Emerging Markets

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

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

Diversification Opportunities for Rbc Small and Emerging Markets

0.02

Correlation Coefficient

Rbc Small  Emerging Markets

Significant diversification

The 3 months correlation between Rbc and Emerging is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Rbc Small Cap and Emerging Markets Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Markets and Rbc Small 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 Small Cap are associated (or correlated) with Emerging Markets. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emerging Markets has no effect on the direction of Rbc Small i.e., Rbc Small and Emerging Markets go up and down completely randomly.

Pair Corralation between Rbc Small and Emerging Markets

Assuming the 90 days horizon Rbc Small Cap is expected to under-perform the Emerging Markets. In addition to that, Rbc Small is 1.01 times more volatile than Emerging Markets Fund. It trades about -0.37 of its total potential returns per unit of risk. Emerging Markets Fund is currently generating about 0.04 per unit of volatility. If you would invest  1,613  in Emerging Markets Fund on December 5, 2024 and sell it today you would earn a total of  11.00  from holding Emerging Markets Fund or generate 0.68% return on investment over 90 days.

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

Rbc Small Cap  vs.  Emerging Markets Fund

Rbc Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Rbc Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Emerging Markets

Risk-Adjusted Performance

Very Weak

Over the last 90 days Emerging Markets Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Emerging Markets 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 Small and Emerging Markets

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

The idea behind Rbc Small Cap and Emerging Markets Fund 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.