Correlation Between RBC Discount and Solar Alliance

Can any of the company-specific risk be diversified away by investing in both RBC Discount and Solar Alliance 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 Solar Alliance 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 Solar Alliance Energy, you can compare the effects of market volatilities on RBC Discount and Solar Alliance 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 Solar Alliance. Check out your portfolio center. Please also check ongoing floating volatility patterns of RBC Discount and Solar Alliance.

Diversification Opportunities for RBC Discount and Solar Alliance

-0.83

Correlation Coefficient

RBC Discount  Solar Alliance

Pay attention - limited upside

The 3 months correlation between RBC and Solar is -0.83. Overlapping area represents the amount of risk that can be diversified away by holding RBC Discount Bond and Solar Alliance Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Solar Alliance Energy 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 Solar Alliance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Solar Alliance Energy has no effect on the direction of RBC Discount i.e., RBC Discount and Solar Alliance go up and down completely randomly.

Pair Corralation between RBC Discount and Solar Alliance

Assuming the 90 days trading horizon RBC Discount Bond is expected to generate 0.07 times more return on investment than Solar Alliance. However, RBC Discount Bond is 14.89 times less risky than Solar Alliance. It trades about 0.22 of its potential returns per unit of risk. Solar Alliance Energy is currently generating about -0.23 per unit of risk. If you would invest  2,154  in RBC Discount Bond on October 5, 2024 and sell it today you would earn a total of  35.00  from holding RBC Discount Bond or generate 1.62% return on investment over 90 days.

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

RBC Discount Bond  vs.  Solar Alliance Energy

RBC Discount Bond

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in RBC Discount Bond are ranked lower than 16 (%) 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.

Solar Alliance Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Solar Alliance Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable essential indicators, Solar Alliance is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with RBC Discount and Solar Alliance

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

The idea behind RBC Discount Bond and Solar Alliance Energy 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.