Correlation Between IShares Canadian and RBC Target

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

By analyzing existing cross correlation between iShares Canadian Short and RBC Target 2029, you can compare the effects of market volatilities on IShares Canadian and RBC Target 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 IShares Canadian with a short position of RBC Target. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Canadian and RBC Target.

Diversification Opportunities for IShares Canadian and RBC Target

0.9

Correlation Coefficient

IShares Canadian  RBC Target

Almost no diversification

The 3 months correlation between IShares and RBC is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding iShares Canadian Short and RBC Target 2029 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RBC Target 2029 and IShares 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 iShares Canadian Short are associated (or correlated) with RBC Target. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RBC Target 2029 has no effect on the direction of IShares Canadian i.e., IShares Canadian and RBC Target go up and down completely randomly.

Pair Corralation between IShares Canadian and RBC Target

Assuming the 90 days trading horizon IShares Canadian is expected to generate 1.07 times less return on investment than RBC Target. But when comparing it to its historical volatility, iShares Canadian Short is 1.46 times less risky than RBC Target. It trades about 0.18 of its potential returns per unit of risk. RBC Target 2029 is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  2,169  in RBC Target 2029 on December 29, 2024 and sell it today you would earn a total of  39.00  from holding RBC Target 2029 or generate 1.8% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

iShares Canadian Short  vs.  RBC Target 2029

iShares Canadian Short

Risk-Adjusted Performance

Good

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

RBC Target 2029

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in RBC Target 2029 are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, RBC Target is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with IShares Canadian and RBC Target

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

The idea behind iShares Canadian Short and RBC Target 2029 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.