Correlation Between TD Active and RBC Canadian

Can any of the company-specific risk be diversified away by investing in both TD Active and RBC Canadian 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 TD Active and RBC Canadian into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between TD Active Preferred and RBC Canadian Preferred, you can compare the effects of market volatilities on TD Active and RBC Canadian 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 TD Active with a short position of RBC Canadian. Check out your portfolio center. Please also check ongoing floating volatility patterns of TD Active and RBC Canadian.

Diversification Opportunities for TD Active and RBC Canadian

0.88

Correlation Coefficient

TD Active  RBC Canadian

Very poor diversification

The 3 months correlation between TPRF and RBC is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding TD Active Preferred and RBC Canadian Preferred in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RBC Canadian Preferred and TD Active 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 TD Active Preferred are associated (or correlated) with RBC Canadian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RBC Canadian Preferred has no effect on the direction of TD Active i.e., TD Active and RBC Canadian go up and down completely randomly.

Pair Corralation between TD Active and RBC Canadian

Assuming the 90 days trading horizon TD Active is expected to generate 1.49 times less return on investment than RBC Canadian. In addition to that, TD Active is 1.07 times more volatile than RBC Canadian Preferred. It trades about 0.1 of its total potential returns per unit of risk. RBC Canadian Preferred is currently generating about 0.16 per unit of volatility. If you would invest  2,129  in RBC Canadian Preferred on December 28, 2024 and sell it today you would earn a total of  61.00  from holding RBC Canadian Preferred or generate 2.87% return on investment over 90 days.

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

TD Active Preferred  vs.  RBC Canadian Preferred

TD Active Preferred

Risk-Adjusted Performance

OK

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

RBC Canadian Preferred

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in RBC Canadian Preferred are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, RBC Canadian is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with TD Active and RBC Canadian

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

The idea behind TD Active Preferred and RBC Canadian Preferred 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .