Correlation Between Royal Bank and HudBay Minerals

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

Diversification Opportunities for Royal Bank and HudBay Minerals

0.07

Correlation Coefficient

Royal Bank  HudBay Minerals

Significant diversification

The 3 months correlation between Royal and HudBay is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Royal Bank of and HudBay Minerals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HudBay Minerals 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 HudBay Minerals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HudBay Minerals has no effect on the direction of Royal Bank i.e., Royal Bank and HudBay Minerals go up and down completely randomly.

Pair Corralation between Royal Bank and HudBay Minerals

Assuming the 90 days trading horizon Royal Bank is expected to generate 11.06 times less return on investment than HudBay Minerals. But when comparing it to its historical volatility, Royal Bank of is 11.22 times less risky than HudBay Minerals. It trades about 0.01 of its potential returns per unit of risk. HudBay Minerals is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,194  in HudBay Minerals on December 23, 2024 and sell it today you would lose (27.00) from holding HudBay Minerals or give up 2.26% of portfolio value over 90 days.

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

Royal Bank of  vs.  HudBay Minerals

Royal Bank

Risk-Adjusted Performance

Very Weak

Over the last 90 days Royal Bank of has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

HudBay Minerals

Risk-Adjusted Performance

Very Weak

Over the last 90 days HudBay Minerals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, HudBay Minerals 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 HudBay Minerals

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

The idea behind Royal Bank of and HudBay Minerals 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.

Check out your portfolio center.

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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.