Correlation Between Royal Bank and FirstRand

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

Diversification Opportunities for Royal Bank and FirstRand

0.23

Correlation Coefficient

Royal Bank  FirstRand

Modest diversification

The 3 months correlation between Royal and FirstRand is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Royal Bank of and FirstRand Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FirstRand 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 FirstRand. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FirstRand ADR has no effect on the direction of Royal Bank i.e., Royal Bank and FirstRand go up and down completely randomly.

Pair Corralation between Royal Bank and FirstRand

Allowing for the 90-day total investment horizon Royal Bank of is expected to generate 0.42 times more return on investment than FirstRand. However, Royal Bank of is 2.39 times less risky than FirstRand. It trades about 0.1 of its potential returns per unit of risk. FirstRand Ltd ADR is currently generating about 0.01 per unit of risk. If you would invest  10,768  in Royal Bank of on October 7, 2024 and sell it today you would earn a total of  1,275  from holding Royal Bank of or generate 11.84% return on investment over 90 days.

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

Royal Bank of  vs.  FirstRand Ltd ADR

Royal Bank

Risk-Adjusted Performance

0 of 100

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.

FirstRand ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FirstRand Ltd ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's fundamental indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Royal Bank and FirstRand

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

The idea behind Royal Bank of and FirstRand Ltd 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.