Correlation Between Royal Bank and Natwest Group

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

Diversification Opportunities for Royal Bank and Natwest Group

0.55

Correlation Coefficient

Royal Bank  Natwest Group

Very weak diversification

The 3 months correlation between Royal and Natwest is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Royal Bank of and Natwest Group PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Natwest Group PLC 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 Natwest Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Natwest Group PLC has no effect on the direction of Royal Bank i.e., Royal Bank and Natwest Group go up and down completely randomly.

Pair Corralation between Royal Bank and Natwest Group

Allowing for the 90-day total investment horizon Royal Bank is expected to generate 3.47 times less return on investment than Natwest Group. But when comparing it to its historical volatility, Royal Bank of is 2.08 times less risky than Natwest Group. It trades about 0.09 of its potential returns per unit of risk. Natwest Group PLC is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  879.00  in Natwest Group PLC on September 3, 2024 and sell it today you would earn a total of  155.00  from holding Natwest Group PLC or generate 17.63% return on investment over 90 days.

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

Royal Bank of  vs.  Natwest Group PLC

Royal Bank

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Royal Bank of are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Royal Bank is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Natwest Group PLC

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Natwest Group PLC are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Natwest Group reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Royal Bank and Natwest Group

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

The idea behind Royal Bank of and Natwest Group PLC 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.