Correlation Between Royal Bank and Hammond Manufacturing

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

Diversification Opportunities for Royal Bank and Hammond Manufacturing

0.7

Correlation Coefficient

Royal Bank  Hammond Manufacturing

Poor diversification

The 3 months correlation between Royal and Hammond is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Royal Bank of and Hammond Manufacturing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hammond Manufacturing 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 Hammond Manufacturing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hammond Manufacturing has no effect on the direction of Royal Bank i.e., Royal Bank and Hammond Manufacturing go up and down completely randomly.

Pair Corralation between Royal Bank and Hammond Manufacturing

Assuming the 90 days horizon Royal Bank of is expected to generate 0.5 times more return on investment than Hammond Manufacturing. However, Royal Bank of is 1.98 times less risky than Hammond Manufacturing. It trades about -0.08 of its potential returns per unit of risk. Hammond Manufacturing is currently generating about -0.12 per unit of risk. If you would invest  17,160  in Royal Bank of on December 30, 2024 and sell it today you would lose (1,102) from holding Royal Bank of or give up 6.42% of portfolio value over 90 days.

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

Royal Bank of  vs.  Hammond Manufacturing

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 very healthy basic indicators, Royal Bank is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Hammond Manufacturing

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hammond Manufacturing has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Royal Bank and Hammond Manufacturing

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

The idea behind Royal Bank of and Hammond Manufacturing 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.