Correlation Between Royal Bank and First Capital

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

Diversification Opportunities for Royal Bank and First Capital

-0.54

Correlation Coefficient

Royal Bank  First Capital

Excellent diversification

The 3 months correlation between Royal and First is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Royal Bank of and First Capital Real in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Capital Real 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 First Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Capital Real has no effect on the direction of Royal Bank i.e., Royal Bank and First Capital go up and down completely randomly.

Pair Corralation between Royal Bank and First Capital

Assuming the 90 days trading horizon Royal Bank of is expected to generate 0.4 times more return on investment than First Capital. However, Royal Bank of is 2.52 times less risky than First Capital. It trades about 0.12 of its potential returns per unit of risk. First Capital Real is currently generating about -0.06 per unit of risk. If you would invest  2,489  in Royal Bank of on October 7, 2024 and sell it today you would earn a total of  73.00  from holding Royal Bank of or generate 2.93% return on investment over 90 days.

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

Royal Bank of  vs.  First Capital Real

Royal Bank

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Royal Bank of are ranked lower than 9 (%) 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 recent stock price uproar, may contribute to short-horizon losses for the private investors.

First Capital Real

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Capital Real has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, First Capital is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Royal Bank and First Capital

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

The idea behind Royal Bank of and First Capital Real 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.