Correlation Between Royal Bank and Pembina Pipeline

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

Diversification Opportunities for Royal Bank and Pembina Pipeline

-0.54

Correlation Coefficient

Royal Bank  Pembina Pipeline

Excellent diversification

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

Pair Corralation between Royal Bank and Pembina Pipeline

Assuming the 90 days horizon Royal Bank of is expected to generate 1.22 times more return on investment than Pembina Pipeline. However, Royal Bank is 1.22 times more volatile than Pembina Pipeline Corp. It trades about 0.15 of its potential returns per unit of risk. Pembina Pipeline Corp is currently generating about -0.01 per unit of risk. If you would invest  16,664  in Royal Bank of on September 13, 2024 and sell it today you would earn a total of  1,193  from holding Royal Bank of or generate 7.16% return on investment over 90 days.

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

Royal Bank of  vs.  Pembina Pipeline Corp

Royal Bank

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Royal Bank of are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Royal Bank may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pembina Pipeline Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pembina Pipeline Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong essential indicators, Pembina Pipeline is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Royal Bank and Pembina Pipeline

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

The idea behind Royal Bank of and Pembina Pipeline Corp 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.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.