Correlation Between Royal Bank and IA Financial

Can any of the company-specific risk be diversified away by investing in both Royal Bank and IA Financial 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 Royal Bank and IA Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Royal Bank of and iA Financial, you can compare the effects of market volatilities on Royal Bank and IA Financial 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 Royal Bank with a short position of IA Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Royal Bank and IA Financial.

Diversification Opportunities for Royal Bank and IA Financial

0.84

Correlation Coefficient

Royal Bank  IA Financial

Very poor diversification

The 3 months correlation between Royal and IAG is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Royal Bank of and iA Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iA Financial and Royal Bank 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 Royal Bank of are associated (or correlated) with IA Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iA Financial has no effect on the direction of Royal Bank i.e., Royal Bank and IA Financial go up and down completely randomly.

Pair Corralation between Royal Bank and IA Financial

Assuming the 90 days trading horizon Royal Bank is expected to generate 9.69 times less return on investment than IA Financial. But when comparing it to its historical volatility, Royal Bank of is 5.21 times less risky than IA Financial. It trades about 0.1 of its potential returns per unit of risk. iA Financial is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  10,333  in iA Financial on August 31, 2024 and sell it today you would earn a total of  3,050  from holding iA Financial or generate 29.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.41%
Values	Daily Returns

Royal Bank of  vs.  iA Financial

Royal Bank

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Royal Bank of are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Royal Bank is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

iA Financial

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iA Financial are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, IA Financial displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Royal Bank and IA Financial

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

The idea behind Royal Bank of and iA Financial 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.