Correlation Between Royal Bank and Loblaw Companies

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

Diversification Opportunities for Royal Bank and Loblaw Companies

0.67

Correlation Coefficient

Royal Bank  Loblaw Companies

Poor diversification

The 3 months correlation between Royal and Loblaw is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Royal Bank of and Loblaw Companies Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Loblaw Companies 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 Loblaw Companies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Loblaw Companies has no effect on the direction of Royal Bank i.e., Royal Bank and Loblaw Companies go up and down completely randomly.

Pair Corralation between Royal Bank and Loblaw Companies

Assuming the 90 days trading horizon Royal Bank is expected to generate 1.51 times less return on investment than Loblaw Companies. But when comparing it to its historical volatility, Royal Bank of is 2.17 times less risky than Loblaw Companies. It trades about 0.17 of its potential returns per unit of risk. Loblaw Companies Limited is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  17,650  in Loblaw Companies Limited on October 9, 2024 and sell it today you would earn a total of  1,247  from holding Loblaw Companies Limited or generate 7.07% return on investment over 90 days.

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

Royal Bank of  vs.  Loblaw Companies Limited

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.

Loblaw Companies

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Loblaw Companies Limited are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Loblaw Companies may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Royal Bank and Loblaw Companies

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

The idea behind Royal Bank of and Loblaw Companies Limited 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.