Correlation Between Royal Bank and Aegon NV

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

Diversification Opportunities for Royal Bank and Aegon NV

0.03

Correlation Coefficient

Royal Bank  Aegon NV

Significant diversification

The 3 months correlation between Royal and Aegon is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Royal Bank of and Aegon NV ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aegon NV ADR 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 Aegon NV. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aegon NV ADR has no effect on the direction of Royal Bank i.e., Royal Bank and Aegon NV go up and down completely randomly.

Pair Corralation between Royal Bank and Aegon NV

Allowing for the 90-day total investment horizon Royal Bank of is expected to under-perform the Aegon NV. But the stock apears to be less risky and, when comparing its historical volatility, Royal Bank of is 1.59 times less risky than Aegon NV. The stock trades about -0.05 of its potential returns per unit of risk. The Aegon NV ADR is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  576.00  in Aegon NV ADR on December 19, 2024 and sell it today you would earn a total of  94.00  from holding Aegon NV ADR or generate 16.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

Royal Bank of  vs.  Aegon NV ADR

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

Aegon NV ADR

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Aegon NV ADR are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Aegon NV reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Royal Bank and Aegon NV

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

The idea behind Royal Bank of and Aegon NV ADR 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.