Correlation Between Royal Bank and China Gold

Can any of the company-specific risk be diversified away by investing in both Royal Bank and China Gold 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 China Gold 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 China Gold International, you can compare the effects of market volatilities on Royal Bank and China Gold 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 China Gold. Check out your portfolio center. Please also check ongoing floating volatility patterns of Royal Bank and China Gold.

Diversification Opportunities for Royal Bank and China Gold

0.59

Correlation Coefficient

Royal Bank  China Gold

Very weak diversification

The 3 months correlation between Royal and China is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Royal Bank of and China Gold International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Gold International 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 China Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Gold International has no effect on the direction of Royal Bank i.e., Royal Bank and China Gold go up and down completely randomly.

Pair Corralation between Royal Bank and China Gold

Assuming the 90 days horizon Royal Bank is expected to generate 2.04 times less return on investment than China Gold. But when comparing it to its historical volatility, Royal Bank of is 5.0 times less risky than China Gold. It trades about 0.11 of its potential returns per unit of risk. China Gold International is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  641.00  in China Gold International on October 1, 2024 and sell it today you would earn a total of  41.00  from holding China Gold International or generate 6.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Royal Bank of  vs.  China Gold International

Royal Bank

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Royal Bank of are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Royal Bank is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

China Gold International

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Gold International are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal technical and fundamental indicators, China Gold may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Royal Bank and China Gold

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

The idea behind Royal Bank of and China Gold International 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.