Correlation Between Rbc Microcap and Northern Small

Can any of the company-specific risk be diversified away by investing in both Rbc Microcap and Northern Small 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 Microcap and Northern Small into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Rbc Microcap Value and Northern Small Cap, you can compare the effects of market volatilities on Rbc Microcap and Northern Small 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 Microcap with a short position of Northern Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rbc Microcap and Northern Small.

Diversification Opportunities for Rbc Microcap and Northern Small

0.95

Correlation Coefficient

Rbc Microcap  Northern Small

Almost no diversification

The 3 months correlation between Rbc and Northern is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Rbc Microcap Value and Northern Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Small Cap and Rbc Microcap 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 Microcap Value are associated (or correlated) with Northern Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Small Cap has no effect on the direction of Rbc Microcap i.e., Rbc Microcap and Northern Small go up and down completely randomly.

Pair Corralation between Rbc Microcap and Northern Small

Assuming the 90 days horizon Rbc Microcap Value is expected to generate 0.91 times more return on investment than Northern Small. However, Rbc Microcap Value is 1.09 times less risky than Northern Small. It trades about 0.06 of its potential returns per unit of risk. Northern Small Cap is currently generating about 0.05 per unit of risk. If you would invest  2,455  in Rbc Microcap Value on September 12, 2024 and sell it today you would earn a total of  662.00  from holding Rbc Microcap Value or generate 26.97% return on investment over 90 days.

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

Rbc Microcap Value  vs.  Northern Small Cap

Rbc Microcap Value

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Rbc Microcap Value are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Rbc Microcap showed solid returns over the last few months and may actually be approaching a breakup point.

Northern Small Cap

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Small Cap are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Northern Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Rbc Microcap and Northern Small

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

The idea behind Rbc Microcap Value and Northern Small Cap 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.