Correlation Between Health Care and Royce Opportunity

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

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

Diversification Opportunities for Health Care and Royce Opportunity

0.18

Correlation Coefficient

Health Care  Royce Opportunity

Average diversification

The 3 months correlation between Health and Royce is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Health Care Ultrasector and Royce Opportunity Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royce Opportunity and Health Care 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 Health Care Ultrasector 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 Health Care i.e., Health Care and Royce Opportunity go up and down completely randomly.

Pair Corralation between Health Care and Royce Opportunity

Assuming the 90 days horizon Health Care Ultrasector is expected to generate 0.59 times more return on investment than Royce Opportunity. However, Health Care Ultrasector is 1.7 times less risky than Royce Opportunity. It trades about -0.09 of its potential returns per unit of risk. Royce Opportunity Fund is currently generating about -0.29 per unit of risk. If you would invest  10,339  in Health Care Ultrasector on October 12, 2024 and sell it today you would lose (238.00) from holding Health Care Ultrasector or give up 2.3% of portfolio value over 90 days.

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

Health Care Ultrasector  vs.  Royce Opportunity Fund

Health Care Ultrasector

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Health Care Ultrasector has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's forward indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Royce Opportunity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Royce Opportunity Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Royce Opportunity is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Health Care and Royce Opportunity

The main advantage of trading using opposite Health Care and Royce Opportunity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Health Care 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 Health Care Ultrasector 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.

Check out your portfolio center.

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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.