Correlation Between Royal Bank and Nu Holdings

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

Diversification Opportunities for Royal Bank and Nu Holdings

0.33

Correlation Coefficient

Royal Bank  Nu Holdings

Weak diversification

The 3 months correlation between Royal and Nu Holdings is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Royal Bank of and Nu Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nu Holdings 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 Nu Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nu Holdings has no effect on the direction of Royal Bank i.e., Royal Bank and Nu Holdings go up and down completely randomly.

Pair Corralation between Royal Bank and Nu Holdings

Allowing for the 90-day total investment horizon Royal Bank of is expected to under-perform the Nu Holdings. But the stock apears to be less risky and, when comparing its historical volatility, Royal Bank of is 2.9 times less risky than Nu Holdings. The stock trades about -0.04 of its potential returns per unit of risk. The Nu Holdings is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,065  in Nu Holdings on December 29, 2024 and sell it today you would lose (30.00) from holding Nu Holdings or give up 2.82% of portfolio value over 90 days.

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

Royal Bank of  vs.  Nu Holdings

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.

Nu Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nu Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Nu Holdings is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Royal Bank and Nu Holdings

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

The idea behind Royal Bank of and Nu Holdings 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.