Correlation Between Oil Gas and Royce Special

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

By analyzing existing cross correlation between Oil Gas Ultrasector and Royce Special Equity, you can compare the effects of market volatilities on Oil Gas and Royce Special 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 Oil Gas with a short position of Royce Special. Check out your portfolio center. Please also check ongoing floating volatility patterns of Oil Gas and Royce Special.

Diversification Opportunities for Oil Gas and Royce Special

0.07

Correlation Coefficient

Oil Gas  Royce Special

Significant diversification

The 3 months correlation between Oil and Royce is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Oil Gas Ultrasector and Royce Special Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royce Special Equity and Oil Gas 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 Oil Gas Ultrasector are associated (or correlated) with Royce Special. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royce Special Equity has no effect on the direction of Oil Gas i.e., Oil Gas and Royce Special go up and down completely randomly.

Pair Corralation between Oil Gas and Royce Special

Assuming the 90 days horizon Oil Gas Ultrasector is expected to generate 2.15 times more return on investment than Royce Special. However, Oil Gas is 2.15 times more volatile than Royce Special Equity. It trades about 0.13 of its potential returns per unit of risk. Royce Special Equity is currently generating about -0.14 per unit of risk. If you would invest  3,177  in Oil Gas Ultrasector on December 19, 2024 and sell it today you would earn a total of  451.00  from holding Oil Gas Ultrasector or generate 14.2% return on investment over 90 days.

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

Oil Gas Ultrasector  vs.  Royce Special Equity

Oil Gas Ultrasector

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Oil Gas Ultrasector are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Oil Gas showed solid returns over the last few months and may actually be approaching a breakup point.

Royce Special Equity

Risk-Adjusted Performance

Very Weak

Over the last 90 days Royce Special Equity has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Oil Gas and Royce Special

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

The idea behind Oil Gas Ultrasector and Royce Special Equity 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.