Correlation Between RBC Canadian and IShares SPTSX

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

By analyzing existing cross correlation between RBC Canadian Bank and iShares SPTSX Canadian, you can compare the effects of market volatilities on RBC Canadian and IShares SPTSX 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 Canadian with a short position of IShares SPTSX. Check out your portfolio center. Please also check ongoing floating volatility patterns of RBC Canadian and IShares SPTSX.

Diversification Opportunities for RBC Canadian and IShares SPTSX

0.42

Correlation Coefficient

RBC Canadian  IShares SPTSX

Very weak diversification

The 3 months correlation between RBC and IShares is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding RBC Canadian Bank and iShares SPTSX Canadian in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares SPTSX Canadian and RBC Canadian 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 Canadian Bank are associated (or correlated) with IShares SPTSX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares SPTSX Canadian has no effect on the direction of RBC Canadian i.e., RBC Canadian and IShares SPTSX go up and down completely randomly.

Pair Corralation between RBC Canadian and IShares SPTSX

Assuming the 90 days trading horizon RBC Canadian Bank is expected to generate 1.47 times more return on investment than IShares SPTSX. However, RBC Canadian is 1.47 times more volatile than iShares SPTSX Canadian. It trades about 0.29 of its potential returns per unit of risk. iShares SPTSX Canadian is currently generating about 0.13 per unit of risk. If you would invest  2,630  in RBC Canadian Bank on September 14, 2024 and sell it today you would earn a total of  229.00  from holding RBC Canadian Bank or generate 8.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

RBC Canadian Bank  vs.  iShares SPTSX Canadian

RBC Canadian Bank

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in RBC Canadian Bank are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, RBC Canadian may actually be approaching a critical reversion point that can send shares even higher in January 2025.

iShares SPTSX Canadian

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares SPTSX Canadian are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, IShares SPTSX is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with RBC Canadian and IShares SPTSX

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

The idea behind RBC Canadian Bank and iShares SPTSX Canadian 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 CEOs Directory module to screen CEOs from public companies around the world.