Correlation Between Royal Bank and Barclays PLC

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

Diversification Opportunities for Royal Bank and Barclays PLC

-0.52

Correlation Coefficient

Royal Bank  Barclays PLC

Excellent diversification

The 3 months correlation between Royal and Barclays is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Royal Bank of and Barclays PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Barclays PLC 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 Barclays PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Barclays PLC ADR has no effect on the direction of Royal Bank i.e., Royal Bank and Barclays PLC go up and down completely randomly.

Pair Corralation between Royal Bank and Barclays PLC

Allowing for the 90-day total investment horizon Royal Bank of is expected to under-perform the Barclays PLC. But the stock apears to be less risky and, when comparing its historical volatility, Royal Bank of is 1.89 times less risky than Barclays PLC. The stock trades about -0.05 of its potential returns per unit of risk. The Barclays PLC ADR is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  1,306  in Barclays PLC ADR on December 28, 2024 and sell it today you would earn a total of  282.00  from holding Barclays PLC ADR or generate 21.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Royal Bank of  vs.  Barclays PLC 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 newest stock price disturbance, may contribute to short-term losses for the investors.

Barclays PLC ADR

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Barclays PLC ADR are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak fundamental indicators, Barclays PLC unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Royal Bank and Barclays PLC

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

The idea behind Royal Bank of and Barclays PLC 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.

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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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.