Correlation Between Adams Natural and Royce Special

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

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

Diversification Opportunities for Adams Natural and Royce Special

-0.07

Correlation Coefficient

Adams Natural  Royce Special

Good diversification

The 3 months correlation between Adams and Royce is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Adams Natural Resources 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 Adams Natural 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 Adams Natural Resources 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 Adams Natural i.e., Adams Natural and Royce Special go up and down completely randomly.

Pair Corralation between Adams Natural and Royce Special

Considering the 90-day investment horizon Adams Natural Resources is expected to generate 1.29 times more return on investment than Royce Special. However, Adams Natural is 1.29 times more volatile than Royce Special Equity. It trades about 0.11 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  2,074  in Adams Natural Resources on December 19, 2024 and sell it today you would earn a total of  156.00  from holding Adams Natural Resources or generate 7.52% return on investment over 90 days.

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

Adams Natural Resources  vs.  Royce Special Equity

Adams Natural Resources

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Adams Natural Resources are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of very fragile technical and fundamental indicators, Adams Natural may actually be approaching a critical reversion point that can send shares even higher in April 2025.

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 Adams Natural and Royce Special

The main advantage of trading using opposite Adams Natural and Royce Special positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Adams Natural 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 Adams Natural Resources 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.