# Correlation Between European Residential and RBC Discount

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Can any of the company-specific risk be diversified away by investing in both European Residential and RBC Discount 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 European Residential and RBC Discount into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between European Residential Real and RBC Discount Bond, you can compare the effects of market volatilities on European Residential and RBC Discount 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 European Residential with a short position of RBC Discount. Check out your portfolio center. Please also check ongoing floating volatility patterns of European Residential and RBC Discount.

## Diversification Opportunities for European Residential and RBC Discount

 0.82 Correlation Coefficient

### Very poor diversification

The 3 months correlation between European and RBC is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding European Residential Real and RBC Discount Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RBC Discount Bond and European Residential 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 European Residential Real are associated (or correlated) with RBC Discount. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RBC Discount Bond has no effect on the direction of European Residential i.e., European Residential and RBC Discount go up and down completely randomly.

## Pair Corralation between European Residential and RBC Discount

Assuming the 90 days trading horizon European Residential Real is expected to generate 5.52 times more return on investment than RBC Discount. However, European Residential is 5.52 times more volatile than RBC Discount Bond. It trades about 0.13 of its potential returns per unit of risk. RBC Discount Bond is currently generating about 0.09 per unit of risk. If you would invest  212.00  in European Residential Real on June 20, 2024 and sell it today you would earn a total of  105.00  from holding European Residential Real or generate 49.53% return on investment over 90 days.
 Time Period 3 Months [change] Direction Moves Together Strength Strong Accuracy 99.51% Values Daily Returns

## European Residential Real  vs.  RBC Discount Bond

 Performance
 Timeline
 European Residential Real Correlation Profile

### 21 of 100

 Weak Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in European Residential Real are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, European Residential sustained solid returns over the last few months and may actually be approaching a breakup point.
 Performance Backtest Predict
 RBC Discount Bond Correlation Profile

### 11 of 100

 Weak Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in RBC Discount Bond are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, RBC Discount is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.
 Performance Backtest Predict

## European Residential and RBC Discount Volatility Contrast

 Predicted Return Density
 Returns

## Pair Trading with European Residential and RBC Discount

The main advantage of trading using opposite European Residential and RBC Discount positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if European Residential position performs unexpectedly, RBC Discount 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 Discount will offset losses from the drop in RBC Discount's long position.
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The idea behind European Residential Real and RBC Discount Bond 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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