Correlation Between RBC Discount and Economic Investment

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

By analyzing existing cross correlation between RBC Discount Bond and Economic Investment Trust, you can compare the effects of market volatilities on RBC Discount and Economic Investment 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 Discount with a short position of Economic Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of RBC Discount and Economic Investment.

Diversification Opportunities for RBC Discount and Economic Investment

-0.21

Correlation Coefficient

RBC Discount  Economic Investment

Very good diversification

The 3 months correlation between RBC and Economic is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding RBC Discount Bond and Economic Investment Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Economic Investment Trust and RBC Discount 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 Discount Bond are associated (or correlated) with Economic Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Economic Investment Trust has no effect on the direction of RBC Discount i.e., RBC Discount and Economic Investment go up and down completely randomly.

Pair Corralation between RBC Discount and Economic Investment

Assuming the 90 days trading horizon RBC Discount is expected to generate 2.29 times less return on investment than Economic Investment. But when comparing it to its historical volatility, RBC Discount Bond is 2.99 times less risky than Economic Investment. It trades about 0.18 of its potential returns per unit of risk. Economic Investment Trust is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  14,099  in Economic Investment Trust on October 8, 2024 and sell it today you would earn a total of  2,620  from holding Economic Investment Trust or generate 18.58% return on investment over 90 days.

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

RBC Discount Bond  vs.  Economic Investment Trust

RBC Discount Bond

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in RBC Discount Bond are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, RBC Discount is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Economic Investment Trust

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Economic Investment Trust are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Economic Investment 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 Discount and Economic Investment

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

The idea behind RBC Discount Bond and Economic Investment Trust 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.