Correlation Between Aama Income and Royce Opportunity

Can any of the company-specific risk be diversified away by investing in both Aama Income and Royce Opportunity 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 Aama Income and Royce Opportunity into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Aama Income Fund and Royce Opportunity Fund, you can compare the effects of market volatilities on Aama Income and Royce Opportunity 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 Aama Income with a short position of Royce Opportunity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aama Income and Royce Opportunity.

Diversification Opportunities for Aama Income and Royce Opportunity

0.43

Correlation Coefficient

Aama Income  Royce Opportunity

Very weak diversification

The 3 months correlation between Aama and Royce is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Aama Income Fund and Royce Opportunity Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royce Opportunity and Aama Income 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 Aama Income Fund are associated (or correlated) with Royce Opportunity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royce Opportunity has no effect on the direction of Aama Income i.e., Aama Income and Royce Opportunity go up and down completely randomly.

Pair Corralation between Aama Income and Royce Opportunity

Assuming the 90 days horizon Aama Income is expected to generate 24.46 times less return on investment than Royce Opportunity. But when comparing it to its historical volatility, Aama Income Fund is 23.39 times less risky than Royce Opportunity. It trades about 0.15 of its potential returns per unit of risk. Royce Opportunity Fund is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  1,412  in Royce Opportunity Fund on September 3, 2024 and sell it today you would earn a total of  192.00  from holding Royce Opportunity Fund or generate 13.6% return on investment over 90 days.

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

Aama Income Fund  vs.  Royce Opportunity Fund

Aama Income Fund

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Aama Income Fund are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Aama Income is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Royce Opportunity

Risk-Adjusted Performance

12 of 100

Good

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

Pair Trading with Aama Income and Royce Opportunity

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

The idea behind Aama Income Fund and Royce Opportunity Fund 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 Transaction History module to view history of all your transactions and understand their impact on performance.