Correlation Between DWS Municipal and Royce Global

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

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

Diversification Opportunities for DWS Municipal and Royce Global

0.78

Correlation Coefficient

DWS Municipal  Royce Global

Poor diversification

The 3 months correlation between DWS and Royce is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding DWS Municipal Income and Royce Global Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royce Global Value and DWS Municipal 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 DWS Municipal Income are associated (or correlated) with Royce Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royce Global Value has no effect on the direction of DWS Municipal i.e., DWS Municipal and Royce Global go up and down completely randomly.

Pair Corralation between DWS Municipal and Royce Global

Considering the 90-day investment horizon DWS Municipal Income is expected to under-perform the Royce Global. But the stock apears to be less risky and, when comparing its historical volatility, DWS Municipal Income is 1.55 times less risky than Royce Global. The stock trades about -0.11 of its potential returns per unit of risk. The Royce Global Value is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  1,116  in Royce Global Value on October 22, 2024 and sell it today you would lose (16.00) from holding Royce Global Value or give up 1.43% of portfolio value over 90 days.

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

DWS Municipal Income  vs.  Royce Global Value

DWS Municipal Income

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DWS Municipal Income has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, DWS Municipal is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Royce Global Value

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Royce Global Value has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, Royce Global is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with DWS Municipal and Royce Global

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

The idea behind DWS Municipal Income and Royce Global Value 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..