Correlation Between Dow Jones and RBC Banks
Can any of the company-specific risk be diversified away by investing in both Dow Jones and RBC Banks 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 Dow Jones and RBC Banks into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dow Jones Industrial and RBC Banks Yield, you can compare the effects of market volatilities on Dow Jones and RBC Banks 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 Dow Jones with a short position of RBC Banks. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and RBC Banks.
Diversification Opportunities for Dow Jones and RBC Banks
Very poor diversification
The 3 months correlation between Dow and RBC is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and RBC Banks Yield in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RBC Banks Yield and Dow Jones 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 Dow Jones Industrial are associated (or correlated) with RBC Banks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RBC Banks Yield has no effect on the direction of Dow Jones i.e., Dow Jones and RBC Banks go up and down completely randomly.
Pair Corralation between Dow Jones and RBC Banks
Assuming the 90 days trading horizon Dow Jones is expected to generate 1.15 times less return on investment than RBC Banks. But when comparing it to its historical volatility, Dow Jones Industrial is 2.73 times less risky than RBC Banks. It trades about 0.08 of its potential returns per unit of risk. RBC Banks Yield is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 1,734 in RBC Banks Yield on September 3, 2024 and sell it today you would earn a total of 469.00 from holding RBC Banks Yield or generate 27.05% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.79% |
| Values | Daily Returns |
Dow Jones Industrial vs. RBC Banks Yield
Performance |
| Timeline |
Dow Jones and RBC Banks Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
RBC Banks Yield
Pair trading matchups for RBC Banks
Pair Trading with Dow Jones and RBC Banks
The main advantage of trading using opposite Dow Jones and RBC Banks positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, RBC Banks 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 Banks will offset losses from the drop in RBC Banks' long position.| Dow Jones vs. Eastern Co | Dow Jones vs. Uber Technologies | Dow Jones vs. AKITA Drilling | Dow Jones vs. Chemours Co |
| RBC Banks vs. RBC Banks Yield | RBC Banks vs. RBC Quant Dividend | RBC Banks vs. RBC Quant European | RBC Banks vs. RBC Short Term |
Check out your portfolio center.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 Anywhere module to track or share privately all of your investments from the convenience of any device.
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