Correlation Between RBC Quant and IShares Canadian

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

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

Diversification Opportunities for RBC Quant and IShares Canadian

0.69

Correlation Coefficient

RBC Quant  IShares Canadian

Poor diversification

The 3 months correlation between RBC and IShares is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding RBC Quant Emerging and iShares Canadian Real in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Canadian Real and RBC Quant 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 Quant Emerging are associated (or correlated) with IShares Canadian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Canadian Real has no effect on the direction of RBC Quant i.e., RBC Quant and IShares Canadian go up and down completely randomly.

Pair Corralation between RBC Quant and IShares Canadian

Assuming the 90 days trading horizon RBC Quant Emerging is expected to generate 1.2 times more return on investment than IShares Canadian. However, RBC Quant is 1.2 times more volatile than iShares Canadian Real. It trades about 0.07 of its potential returns per unit of risk. iShares Canadian Real is currently generating about 0.08 per unit of risk. If you would invest  2,176  in RBC Quant Emerging on December 29, 2024 and sell it today you would earn a total of  75.00  from holding RBC Quant Emerging or generate 3.45% return on investment over 90 days.

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

RBC Quant Emerging  vs.  iShares Canadian Real

RBC Quant Emerging

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in RBC Quant Emerging are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, RBC Quant is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

iShares Canadian Real

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Canadian Real are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental drivers, IShares Canadian 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 Quant and IShares Canadian

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

The idea behind RBC Quant Emerging and iShares Canadian Real 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.