Correlation Between Vanguard Canadian and RBC Quant

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

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

Diversification Opportunities for Vanguard Canadian and RBC Quant

0.73

Correlation Coefficient

Vanguard Canadian  RBC Quant

Poor diversification

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

Pair Corralation between Vanguard Canadian and RBC Quant

Assuming the 90 days trading horizon Vanguard Canadian is expected to generate 4.39 times less return on investment than RBC Quant. But when comparing it to its historical volatility, Vanguard Canadian Aggregate is 1.54 times less risky than RBC Quant. It trades about 0.03 of its potential returns per unit of risk. RBC Quant EAFE is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  2,896  in RBC Quant EAFE on November 20, 2024 and sell it today you would earn a total of  145.00  from holding RBC Quant EAFE or generate 5.01% return on investment over 90 days.

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

Vanguard Canadian Aggregate  vs.  RBC Quant EAFE

Vanguard Canadian

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Canadian Aggregate are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental drivers, Vanguard Canadian is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

RBC Quant EAFE

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in RBC Quant EAFE are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, RBC Quant is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Vanguard Canadian and RBC Quant

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

The idea behind Vanguard Canadian Aggregate and RBC Quant EAFE 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.