Correlation Between Royal Bank and Western Asset

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

Diversification Opportunities for Royal Bank and Western Asset

0.73

Correlation Coefficient

Royal Bank  Western Asset

Poor diversification

The 3 months correlation between Royal and Western is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Royal Bank of and Western Asset Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Asset Investment 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 Western Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Asset Investment has no effect on the direction of Royal Bank i.e., Royal Bank and Western Asset go up and down completely randomly.

Pair Corralation between Royal Bank and Western Asset

Allowing for the 90-day total investment horizon Royal Bank of is expected to under-perform the Western Asset. In addition to that, Royal Bank is 2.13 times more volatile than Western Asset Investment. It trades about -0.05 of its total potential returns per unit of risk. Western Asset Investment is currently generating about -0.09 per unit of volatility. If you would invest  1,679  in Western Asset Investment on October 22, 2024 and sell it today you would lose (40.00) from holding Western Asset Investment or give up 2.38% 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.  Western Asset Investment

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.

Western Asset Investment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Western Asset Investment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical and fundamental indicators, Western Asset is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Royal Bank and Western Asset

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

The idea behind Royal Bank of and Western Asset Investment 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.