Correlation Between Royal Bank and Canadian Western
Can any of the company-specific risk be diversified away by investing in both Royal Bank and Canadian Western 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 Canadian Western 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 Canadian Western Bank, you can compare the effects of market volatilities on Royal Bank and Canadian Western 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 Canadian Western. Check out your portfolio center. Please also check ongoing floating volatility patterns of Royal Bank and Canadian Western.
Diversification Opportunities for Royal Bank and Canadian Western
0.93 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Royal and Canadian is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Royal Bank of and Canadian Western Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian Western 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 Canadian Western. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian Western Bank has no effect on the direction of Royal Bank i.e., Royal Bank and Canadian Western go up and down completely randomly.
Pair Corralation between Royal Bank and Canadian Western
Assuming the 90 days horizon Royal Bank is expected to generate 2.64 times less return on investment than Canadian Western. But when comparing it to its historical volatility, Royal Bank of is 4.36 times less risky than Canadian Western. It trades about 0.13 of its potential returns per unit of risk. Canadian Western Bank is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 2,337 in Canadian Western Bank on August 31, 2024 and sell it today you would earn a total of 3,684 from holding Canadian Western Bank or generate 157.64% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Royal Bank of vs. Canadian Western Bank
Performance |
| Timeline |
| Royal Bank |
| Canadian Western Bank |
Royal Bank and Canadian Western Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Royal Bank and Canadian Western
The main advantage of trading using opposite Royal Bank and Canadian Western positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Royal Bank position performs unexpectedly, Canadian Western 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 Canadian Western will offset losses from the drop in Canadian Western'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 |
| Canadian Western vs. Laurentian Bank | Canadian Western vs. National Bank of | Canadian Western vs. Great West Lifeco | Canadian Western vs. CI Financial Corp |
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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