Correlation Between GM and RBC Banks
Can any of the company-specific risk be diversified away by investing in both GM 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 GM and RBC Banks into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and RBC Banks Yield, you can compare the effects of market volatilities on GM 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 GM with a short position of RBC Banks. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and RBC Banks.
Diversification Opportunities for GM and RBC Banks
Almost no diversification
The 3 months correlation between GM and RBC is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding General Motors 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 GM 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 General Motors 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 GM i.e., GM and RBC Banks go up and down completely randomly.
Pair Corralation between GM and RBC Banks
Allowing for the 90-day total investment horizon General Motors is expected to generate 1.08 times more return on investment than RBC Banks. However, GM is 1.08 times more volatile than RBC Banks Yield. It trades about 0.05 of its potential returns per unit of risk. RBC Banks Yield is currently generating about 0.04 per unit of risk. If you would invest 3,762 in General Motors on September 3, 2024 and sell it today you would earn a total of 1,797 from holding General Motors or generate 47.77% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 99.79% |
| Values | Daily Returns |
General Motors vs. RBC Banks Yield
Performance |
| Timeline |
| General Motors |
| RBC Banks Yield |
GM and RBC Banks Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and RBC Banks
The main advantage of trading using opposite GM and RBC Banks positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM 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.The idea behind General Motors and RBC Banks Yield 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.| 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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