Correlation Between RBC 1 and Vanguard Total
Can any of the company-specific risk be diversified away by investing in both RBC 1 and Vanguard Total 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 RBC 1 and Vanguard Total into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between RBC 1 5 Year and Vanguard Total Market, you can compare the effects of market volatilities on RBC 1 and Vanguard Total 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 RBC 1 with a short position of Vanguard Total. Check out your portfolio center. Please also check ongoing floating volatility patterns of RBC 1 and Vanguard Total.
Diversification Opportunities for RBC 1 and Vanguard Total
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between RBC and Vanguard is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding RBC 1 5 Year and Vanguard Total Market in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Total Market and RBC 1 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 RBC 1 5 Year are associated (or correlated) with Vanguard Total. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Total Market has no effect on the direction of RBC 1 i.e., RBC 1 and Vanguard Total go up and down completely randomly.
Pair Corralation between RBC 1 and Vanguard Total
Assuming the 90 days trading horizon RBC 1 is expected to generate 4.05 times less return on investment than Vanguard Total. But when comparing it to its historical volatility, RBC 1 5 Year is 4.03 times less risky than Vanguard Total. It trades about 0.11 of its potential returns per unit of risk. Vanguard Total Market is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 7,061 in Vanguard Total Market on September 3, 2024 and sell it today you would earn a total of 3,579 from holding Vanguard Total Market or generate 50.69% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
RBC 1 5 Year vs. Vanguard Total Market
Performance |
| Timeline |
| RBC 1 5 |
| Vanguard Total Market |
RBC 1 and Vanguard Total Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with RBC 1 and Vanguard Total
The main advantage of trading using opposite RBC 1 and Vanguard Total positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if RBC 1 position performs unexpectedly, Vanguard Total 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 Vanguard Total will offset losses from the drop in Vanguard Total's long position.| RBC 1 vs. BMO Short Federal | RBC 1 vs. BMO Short Corporate | RBC 1 vs. BMO Mid Corporate | RBC 1 vs. BMO Long Corporate |
| Vanguard Total vs. Vanguard FTSE Developed | Vanguard Total vs. iShares Core Canadian | Vanguard Total vs. BMO Long Federal | Vanguard Total vs. Vanguard FTSE Canada |
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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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