Correlation Between Defense Metals and RBC Discount

Can any of the company-specific risk be diversified away by investing in both Defense Metals and RBC Discount 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 Defense Metals and RBC Discount into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Defense Metals Corp and RBC Discount Bond, you can compare the effects of market volatilities on Defense Metals and RBC Discount 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 Defense Metals with a short position of RBC Discount. Check out your portfolio center. Please also check ongoing floating volatility patterns of Defense Metals and RBC Discount.

Diversification Opportunities for Defense Metals and RBC Discount

0.54

Correlation Coefficient

Defense Metals  RBC Discount

Very weak diversification

The 3 months correlation between Defense and RBC is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Defense Metals Corp and RBC Discount Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RBC Discount Bond and Defense Metals 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 Defense Metals Corp are associated (or correlated) with RBC Discount. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RBC Discount Bond has no effect on the direction of Defense Metals i.e., Defense Metals and RBC Discount go up and down completely randomly.

Pair Corralation between Defense Metals and RBC Discount

Assuming the 90 days trading horizon Defense Metals Corp is expected to under-perform the RBC Discount. In addition to that, Defense Metals is 17.14 times more volatile than RBC Discount Bond. It trades about 0.0 of its total potential returns per unit of risk. RBC Discount Bond is currently generating about 0.1 per unit of volatility. If you would invest  1,940  in RBC Discount Bond on September 27, 2024 and sell it today you would earn a total of  254.00  from holding RBC Discount Bond or generate 13.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	84.66%
Values	Daily Returns

Defense Metals Corp  vs.  RBC Discount Bond

Defense Metals Corp

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Defense Metals Corp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal technical and fundamental indicators, Defense Metals showed solid returns over the last few months and may actually be approaching a breakup point.

RBC Discount Bond

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in RBC Discount Bond are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, RBC Discount is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Defense Metals and RBC Discount

The main advantage of trading using opposite Defense Metals and RBC Discount positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Defense Metals position performs unexpectedly, RBC Discount 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 Discount will offset losses from the drop in RBC Discount's long position.

The idea behind Defense Metals Corp and RBC Discount Bond 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.

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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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..