Correlation Between RBC Short and IShares IG

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

By analyzing existing cross correlation between RBC Short Term and iShares IG Corporate, you can compare the effects of market volatilities on RBC Short and IShares IG 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 Short with a short position of IShares IG. Check out your portfolio center. Please also check ongoing floating volatility patterns of RBC Short and IShares IG.

Diversification Opportunities for RBC Short and IShares IG

-0.59

Correlation Coefficient

RBC Short  IShares IG

Excellent diversification

The 3 months correlation between RBC and IShares is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding RBC Short Term and iShares IG Corporate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares IG Corporate and RBC Short 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 Short Term are associated (or correlated) with IShares IG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares IG Corporate has no effect on the direction of RBC Short i.e., RBC Short and IShares IG go up and down completely randomly.

Pair Corralation between RBC Short and IShares IG

Assuming the 90 days trading horizon RBC Short Term is expected to generate 0.63 times more return on investment than IShares IG. However, RBC Short Term is 1.59 times less risky than IShares IG. It trades about 0.25 of its potential returns per unit of risk. iShares IG Corporate is currently generating about -0.06 per unit of risk. If you would invest  2,098  in RBC Short Term on September 12, 2024 and sell it today you would earn a total of  91.00  from holding RBC Short Term or generate 4.34% return on investment over 90 days.

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

RBC Short Term  vs.  iShares IG Corporate

RBC Short Term

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in RBC Short Term are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, RBC Short is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

iShares IG Corporate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares IG Corporate has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, IShares IG 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 Short and IShares IG

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

The idea behind RBC Short Term and iShares IG Corporate 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.