Correlation Between International Equity and Royce Special

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

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

Diversification Opportunities for International Equity and Royce Special

0.24

Correlation Coefficient

International Equity  Royce Special

Modest diversification

The 3 months correlation between International and Royce is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding International Equity Portfolio 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 International Equity 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 International Equity Portfolio 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 International Equity i.e., International Equity and Royce Special go up and down completely randomly.

Pair Corralation between International Equity and Royce Special

Assuming the 90 days horizon International Equity Portfolio is expected to under-perform the Royce Special. In addition to that, International Equity is 1.92 times more volatile than Royce Special Equity. It trades about -0.21 of its total potential returns per unit of risk. Royce Special Equity is currently generating about -0.22 per unit of volatility. If you would invest  1,780  in Royce Special Equity on September 20, 2024 and sell it today you would lose (270.00) from holding Royce Special Equity or give up 15.17% of portfolio value over 90 days.

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

International Equity Portfolio  vs.  Royce Special Equity

International Equity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days International Equity Portfolio 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 basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Royce Special Equity

Risk-Adjusted Performance

0 of 100

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 weak performance in the last few months, the Fund's forward indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with International Equity and Royce Special

The main advantage of trading using opposite International Equity and Royce Special positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Equity 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 International Equity Portfolio 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.