Correlation Between Royal Bank and National Bank
Can any of the company-specific risk be diversified away by investing in both Royal Bank and National Bank 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 Royal Bank and National Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Royal Bank of and National Bank of, you can compare the effects of market volatilities on Royal Bank and National Bank 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 Royal Bank with a short position of National Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Royal Bank and National Bank.
Diversification Opportunities for Royal Bank and National Bank
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Royal and National is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Royal Bank of and National Bank of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Bank and Royal Bank 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 Royal Bank of are associated (or correlated) with National Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Bank has no effect on the direction of Royal Bank i.e., Royal Bank and National Bank go up and down completely randomly.
Pair Corralation between Royal Bank and National Bank
Assuming the 90 days trading horizon Royal Bank is expected to generate 1.95 times less return on investment than National Bank. But when comparing it to its historical volatility, Royal Bank of is 1.48 times less risky than National Bank. It trades about 0.14 of its potential returns per unit of risk. National Bank of is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest 9,825 in National Bank of on September 1, 2024 and sell it today you would earn a total of 4,046 from holding National Bank of or generate 41.18% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Royal Bank of vs. National Bank of
Performance |
| Timeline |
| Royal Bank |
| National Bank |
Royal Bank and National Bank Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Royal Bank and National Bank
The main advantage of trading using opposite Royal Bank and National Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Royal Bank position performs unexpectedly, National Bank 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 National Bank will offset losses from the drop in National Bank's long position.| Royal Bank vs. Data Communications Management | Royal Bank vs. Primaris Retail RE | Royal Bank vs. American Hotel Income | Royal Bank vs. Converge Technology Solutions |
| National Bank vs. Canadian Imperial Bank | National Bank vs. Bank of Montreal | National Bank vs. Royal Bank of | National Bank vs. Bank of Nova |
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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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