Correlation Between Vanguard FTSE and RBC Canadian

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

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

Diversification Opportunities for Vanguard FTSE and RBC Canadian

0.96

Correlation Coefficient

Vanguard FTSE  RBC Canadian

Almost no diversification

The 3 months correlation between Vanguard and RBC is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard FTSE Canadian and RBC Canadian Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RBC Canadian Bank and Vanguard FTSE 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 Vanguard FTSE Canadian are associated (or correlated) with RBC Canadian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RBC Canadian Bank has no effect on the direction of Vanguard FTSE i.e., Vanguard FTSE and RBC Canadian go up and down completely randomly.

Pair Corralation between Vanguard FTSE and RBC Canadian

Assuming the 90 days trading horizon Vanguard FTSE is expected to generate 3.0 times less return on investment than RBC Canadian. In addition to that, Vanguard FTSE is 1.29 times more volatile than RBC Canadian Bank. It trades about 0.1 of its total potential returns per unit of risk. RBC Canadian Bank is currently generating about 0.38 per unit of volatility. If you would invest  2,778  in RBC Canadian Bank on September 14, 2024 and sell it today you would earn a total of  81.00  from holding RBC Canadian Bank or generate 2.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.65%
Values	Daily Returns

Vanguard FTSE Canadian  vs.  RBC Canadian Bank

Vanguard FTSE Canadian

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard FTSE Canadian are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Vanguard FTSE is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

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.

Pair Trading with Vanguard FTSE and RBC Canadian

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

The idea behind Vanguard FTSE Canadian and RBC Canadian Bank 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.