Correlation Between RBC Discount and RBC Target

Can any of the company-specific risk be diversified away by investing in both RBC Discount 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 Discount 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 Discount Bond and RBC Target 2029, you can compare the effects of market volatilities on RBC Discount 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 Discount with a short position of RBC Target. Check out your portfolio center. Please also check ongoing floating volatility patterns of RBC Discount and RBC Target.

Diversification Opportunities for RBC Discount and RBC Target

0.42

Correlation Coefficient

RBC Discount  RBC Target

Very weak diversification

The 3 months correlation between RBC and RBC is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding RBC Discount Bond and RBC Target 2029 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RBC Target 2029 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 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 2029 has no effect on the direction of RBC Discount i.e., RBC Discount and RBC Target go up and down completely randomly.

Pair Corralation between RBC Discount and RBC Target

Assuming the 90 days trading horizon RBC Discount Bond is expected to generate 1.57 times more return on investment than RBC Target. However, RBC Discount is 1.57 times more volatile than RBC Target 2029. It trades about 0.19 of its potential returns per unit of risk. RBC Target 2029 is currently generating about 0.14 per unit of risk. If you would invest  2,065  in RBC Discount Bond on September 3, 2024 and sell it today you would earn a total of  90.00  from holding RBC Discount Bond or generate 4.36% return on investment over 90 days.

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

RBC Discount Bond  vs.  RBC Target 2029

RBC Discount Bond

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in RBC Discount Bond are ranked lower than 14 (%) 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.

RBC Target 2029

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in RBC Target 2029 are ranked lower than 11 (%) 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 Discount and RBC Target

The main advantage of trading using opposite RBC Discount and RBC Target positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if RBC Discount 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 Discount Bond and RBC Target 2029 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 Transaction History module to view history of all your transactions and understand their impact on performance.