Correlation Between Royal Bank and Polaris Infrastructure

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

Diversification Opportunities for Royal Bank and Polaris Infrastructure

0.06

Correlation Coefficient

Royal Bank  Polaris Infrastructure

Significant diversification

The 3 months correlation between Royal and Polaris is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Royal Bank of and Polaris Infrastructure in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Polaris Infrastructure 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 Polaris Infrastructure. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Polaris Infrastructure has no effect on the direction of Royal Bank i.e., Royal Bank and Polaris Infrastructure go up and down completely randomly.

Pair Corralation between Royal Bank and Polaris Infrastructure

Assuming the 90 days trading horizon Royal Bank of is expected to generate 0.27 times more return on investment than Polaris Infrastructure. However, Royal Bank of is 3.72 times less risky than Polaris Infrastructure. It trades about -0.02 of its potential returns per unit of risk. Polaris Infrastructure is currently generating about -0.08 per unit of risk. If you would invest  2,550  in Royal Bank of on December 22, 2024 and sell it today you would lose (10.00) from holding Royal Bank of or give up 0.39% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Royal Bank of  vs.  Polaris Infrastructure

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.

Polaris Infrastructure

Risk-Adjusted Performance

Very Weak

Over the last 90 days Polaris Infrastructure has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Royal Bank and Polaris Infrastructure

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

The idea behind Royal Bank of and Polaris Infrastructure 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.