Correlation Between Royal Bank and Automotive Finco
Can any of the company-specific risk be diversified away by investing in both Royal Bank and Automotive Finco 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 Automotive Finco 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 Automotive Finco Corp, you can compare the effects of market volatilities on Royal Bank and Automotive Finco 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 Automotive Finco. Check out your portfolio center. Please also check ongoing floating volatility patterns of Royal Bank and Automotive Finco.
Diversification Opportunities for Royal Bank and Automotive Finco
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Royal and Automotive is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Royal Bank of and Automotive Finco Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Automotive Finco Corp 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 Automotive Finco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Automotive Finco Corp has no effect on the direction of Royal Bank i.e., Royal Bank and Automotive Finco go up and down completely randomly.
Pair Corralation between Royal Bank and Automotive Finco
Assuming the 90 days horizon Royal Bank is expected to generate 2.39 times less return on investment than Automotive Finco. But when comparing it to its historical volatility, Royal Bank of is 6.51 times less risky than Automotive Finco. It trades about 0.19 of its potential returns per unit of risk. Automotive Finco Corp is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 50.00 in Automotive Finco Corp on September 3, 2024 and sell it today you would earn a total of 39.00 from holding Automotive Finco Corp or generate 78.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Royal Bank of vs. Automotive Finco Corp
Performance |
| Timeline |
| Royal Bank |
| Automotive Finco Corp |
Royal Bank and Automotive Finco Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Royal Bank and Automotive Finco
The main advantage of trading using opposite Royal Bank and Automotive Finco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Royal Bank position performs unexpectedly, Automotive Finco 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 Automotive Finco will offset losses from the drop in Automotive Finco's long position.| Royal Bank vs. Toronto Dominion Bank | Royal Bank vs. Bank of Nova | Royal Bank vs. Bank of Montreal | Royal Bank vs. Canadian Imperial Bank |
| Automotive Finco vs. Brookfield Investments | Automotive Finco vs. Canaf Investments | Automotive Finco vs. SalesforceCom CDR | Automotive Finco vs. Canlan Ice Sports |
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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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| Portfolio Volatility Check portfolio volatility and analyze historical return density to properly model market risk |