Correlation Between Royal Canadian and Solar Alliance

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

By analyzing existing cross correlation between Royal Canadian Mint and Solar Alliance Energy, you can compare the effects of market volatilities on Royal Canadian and Solar Alliance 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 Canadian with a short position of Solar Alliance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Royal Canadian and Solar Alliance.

Diversification Opportunities for Royal Canadian and Solar Alliance

-0.63

Correlation Coefficient

Royal Canadian  Solar Alliance

Excellent diversification

The 3 months correlation between Royal and Solar is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Royal Canadian Mint and Solar Alliance Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Solar Alliance Energy and Royal Canadian 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 Canadian Mint are associated (or correlated) with Solar Alliance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Solar Alliance Energy has no effect on the direction of Royal Canadian i.e., Royal Canadian and Solar Alliance go up and down completely randomly.

Pair Corralation between Royal Canadian and Solar Alliance

Assuming the 90 days trading horizon Royal Canadian is expected to generate 1.47 times less return on investment than Solar Alliance. But when comparing it to its historical volatility, Royal Canadian Mint is 8.92 times less risky than Solar Alliance. It trades about 0.1 of its potential returns per unit of risk. Solar Alliance Energy is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  8.00  in Solar Alliance Energy on March 17, 2024 and sell it today you would lose (3.00) from holding Solar Alliance Energy or give up 37.5% of portfolio value over 90 days.

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

Royal Canadian Mint  vs.  Solar Alliance Energy

Royal Canadian Mint

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Royal Canadian Mint are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Royal Canadian may actually be approaching a critical reversion point that can send shares even higher in July 2024.

Solar Alliance Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Solar Alliance Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable essential indicators, Solar Alliance is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Royal Canadian and Solar Alliance

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

The idea behind Royal Canadian Mint and Solar Alliance Energy 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.