Correlation Between Royal Bank and Air Canada

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

Diversification Opportunities for Royal Bank and Air Canada

0.16

Correlation Coefficient

Royal Bank  Air Canada

Average diversification

The 3 months correlation between Royal and Air is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Royal Bank of and Air Canada in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air Canada 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 Air Canada. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air Canada has no effect on the direction of Royal Bank i.e., Royal Bank and Air Canada go up and down completely randomly.

Pair Corralation between Royal Bank and Air Canada

Assuming the 90 days trading horizon Royal Bank of is expected to generate 0.19 times more return on investment than Air Canada. However, Royal Bank of is 5.15 times less risky than Air Canada. It trades about -0.01 of its potential returns per unit of risk. Air Canada is currently generating about -0.39 per unit of risk. If you would invest  2,556  in Royal Bank of on December 29, 2024 and sell it today you would lose (7.00) from holding Royal Bank of or give up 0.27% 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.  Air Canada

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 recent stock price uproar, may contribute to short-horizon losses for the private investors.

Air Canada

Risk-Adjusted Performance

Very Weak

Over the last 90 days Air Canada has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Royal Bank and Air Canada

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

The idea behind Royal Bank of and Air Canada 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.