Correlation Between Stock Exchange and Royal Plus

Can any of the company-specific risk be diversified away by investing in both Stock Exchange and Royal Plus 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 Stock Exchange and Royal Plus into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Stock Exchange Of and Royal Plus PCL, you can compare the effects of market volatilities on Stock Exchange and Royal Plus 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 Stock Exchange with a short position of Royal Plus. Check out your portfolio center. Please also check ongoing floating volatility patterns of Stock Exchange and Royal Plus.

Diversification Opportunities for Stock Exchange and Royal Plus

0.11

Correlation Coefficient

Stock Exchange  Royal Plus

Average diversification

The 3 months correlation between Stock and Royal is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Stock Exchange Of and Royal Plus PCL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royal Plus PCL and Stock Exchange 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 Stock Exchange Of are associated (or correlated) with Royal Plus. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royal Plus PCL has no effect on the direction of Stock Exchange i.e., Stock Exchange and Royal Plus go up and down completely randomly.

Pair Corralation between Stock Exchange and Royal Plus

Assuming the 90 days trading horizon Stock Exchange Of is expected to generate 0.36 times more return on investment than Royal Plus. However, Stock Exchange Of is 2.77 times less risky than Royal Plus. It trades about -0.07 of its potential returns per unit of risk. Royal Plus PCL is currently generating about -0.17 per unit of risk. If you would invest  145,147  in Stock Exchange Of on September 14, 2024 and sell it today you would lose (1,158) from holding Stock Exchange Of or give up 0.8% of portfolio value over 90 days.

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

Stock Exchange Of  vs.  Royal Plus PCL

Pair Trading with Stock Exchange and Royal Plus

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

The idea behind Stock Exchange Of and Royal Plus PCL 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.