Correlation Between Royal Bank and Canadian TireLimited
Can any of the company-specific risk be diversified away by investing in both Royal Bank and Canadian TireLimited 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 Canadian TireLimited 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 Canadian Tire, you can compare the effects of market volatilities on Royal Bank and Canadian TireLimited 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 Canadian TireLimited. Check out your portfolio center. Please also check ongoing floating volatility patterns of Royal Bank and Canadian TireLimited.
Diversification Opportunities for Royal Bank and Canadian TireLimited
0.4 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Royal and Canadian is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Royal Bank of and Canadian Tire in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian TireLimited 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 Canadian TireLimited. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian TireLimited has no effect on the direction of Royal Bank i.e., Royal Bank and Canadian TireLimited go up and down completely randomly.
Pair Corralation between Royal Bank and Canadian TireLimited
Assuming the 90 days horizon Royal Bank of is expected to generate 0.57 times more return on investment than Canadian TireLimited. However, Royal Bank of is 1.75 times less risky than Canadian TireLimited. It trades about -0.03 of its potential returns per unit of risk. Canadian Tire is currently generating about -0.06 per unit of risk. If you would invest 17,432 in Royal Bank of on December 1, 2024 and sell it today you would lose (334.00) from holding Royal Bank of or give up 1.92% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Royal Bank of vs. Canadian Tire
Performance |
Timeline |
Royal Bank |
Canadian TireLimited |
Royal Bank and Canadian TireLimited Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Royal Bank and Canadian TireLimited
The main advantage of trading using opposite Royal Bank and Canadian TireLimited positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Royal Bank position performs unexpectedly, Canadian TireLimited 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 Canadian TireLimited will offset losses from the drop in Canadian TireLimited's long position.Royal Bank vs. Toronto Dominion Bank | Royal Bank vs. Bank of Nova | Royal Bank vs. Bank of Montreal | Royal Bank vs. Canadian Imperial Bank |
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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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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