Correlation Between Royal Bank and Aurora Cannabis

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

Diversification Opportunities for Royal Bank and Aurora Cannabis

-0.61

Correlation Coefficient

Royal Bank  Aurora Cannabis

Excellent diversification

The 3 months correlation between Royal and Aurora is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Royal Bank of and Aurora Cannabis in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aurora Cannabis 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 Aurora Cannabis. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aurora Cannabis has no effect on the direction of Royal Bank i.e., Royal Bank and Aurora Cannabis go up and down completely randomly.

Pair Corralation between Royal Bank and Aurora Cannabis

Assuming the 90 days trading horizon Royal Bank is expected to generate 4.36 times less return on investment than Aurora Cannabis. But when comparing it to its historical volatility, Royal Bank of is 7.76 times less risky than Aurora Cannabis. It trades about 0.23 of its potential returns per unit of risk. Aurora Cannabis is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  636.00  in Aurora Cannabis on October 7, 2024 and sell it today you would earn a total of  44.00  from holding Aurora Cannabis or generate 6.92% return on investment over 90 days.

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

Royal Bank of  vs.  Aurora Cannabis

Royal Bank

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Royal Bank of are ranked lower than 13 (%) 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 latest stock price uproar, may contribute to short-horizon losses for the private investors.

Aurora Cannabis

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aurora Cannabis has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental drivers, Aurora Cannabis is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Royal Bank and Aurora Cannabis

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

The idea behind Royal Bank of and Aurora Cannabis 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.