Correlation Between Royal Bank and Metro

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

Diversification Opportunities for Royal Bank and Metro

0.81

Correlation Coefficient

Royal Bank  Metro

Very poor diversification

The 3 months correlation between Royal and Metro is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Royal Bank of and Metro Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metro Inc 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 Metro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Metro Inc has no effect on the direction of Royal Bank i.e., Royal Bank and Metro go up and down completely randomly.

Pair Corralation between Royal Bank and Metro

Assuming the 90 days horizon Royal Bank of is expected to generate 0.83 times more return on investment than Metro. However, Royal Bank of is 1.2 times less risky than Metro. It trades about -0.2 of its potential returns per unit of risk. Metro Inc is currently generating about -0.26 per unit of risk. If you would invest  17,863  in Royal Bank of on October 9, 2024 and sell it today you would lose (438.00) from holding Royal Bank of or give up 2.45% of portfolio value over 90 days.

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

Royal Bank of  vs.  Metro Inc

Royal Bank

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Royal Bank of are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. 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.

Metro Inc

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Metro Inc are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Metro may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Royal Bank and Metro

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

The idea behind Royal Bank of and Metro Inc 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.

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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.