Correlation Between Driehaus Small and Royce Opportunity

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

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

Diversification Opportunities for Driehaus Small and Royce Opportunity

0.94

Correlation Coefficient

Driehaus Small  Royce Opportunity

Almost no diversification

The 3 months correlation between Driehaus and Royce is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Driehaus Small Cap and Royce Opportunity Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royce Opportunity and Driehaus Small 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 Driehaus Small Cap 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 Driehaus Small i.e., Driehaus Small and Royce Opportunity go up and down completely randomly.

Pair Corralation between Driehaus Small and Royce Opportunity

Assuming the 90 days horizon Driehaus Small Cap is expected to generate 1.04 times more return on investment than Royce Opportunity. However, Driehaus Small is 1.04 times more volatile than Royce Opportunity Fund. It trades about 0.16 of its potential returns per unit of risk. Royce Opportunity Fund is currently generating about 0.15 per unit of risk. If you would invest  2,210  in Driehaus Small Cap on September 13, 2024 and sell it today you would earn a total of  305.00  from holding Driehaus Small Cap or generate 13.8% return on investment over 90 days.

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

Driehaus Small Cap  vs.  Royce Opportunity Fund

Driehaus Small Cap

Risk-Adjusted Performance

12 of 100

Good

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

Royce Opportunity

Risk-Adjusted Performance

11 of 100

Good

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

Pair Trading with Driehaus Small and Royce Opportunity

The main advantage of trading using opposite Driehaus Small and Royce Opportunity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Driehaus Small 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 Driehaus Small Cap 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..