Correlation Between Real Estate and Royce Premier

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

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

Diversification Opportunities for Real Estate and Royce Premier

0.36

Correlation Coefficient

Real Estate  Royce Premier

Weak diversification

The 3 months correlation between Real and Royce is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Real Estate Fund and Royce Premier Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royce Premier and Real Estate 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 Real Estate Fund are associated (or correlated) with Royce Premier. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royce Premier has no effect on the direction of Real Estate i.e., Real Estate and Royce Premier go up and down completely randomly.

Pair Corralation between Real Estate and Royce Premier

Assuming the 90 days horizon Real Estate is expected to generate 2.82 times less return on investment than Royce Premier. But when comparing it to its historical volatility, Real Estate Fund is 1.22 times less risky than Royce Premier. It trades about 0.06 of its potential returns per unit of risk. Royce Premier Fund is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  1,166  in Royce Premier Fund on September 5, 2024 and sell it today you would earn a total of  119.00  from holding Royce Premier Fund or generate 10.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Real Estate Fund  vs.  Royce Premier Fund

Real Estate Fund

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Real Estate Fund are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Real Estate is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Royce Premier

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Royce Premier Fund are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Royce Premier may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Real Estate and Royce Premier

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

The idea behind Real Estate Fund and Royce Premier 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.

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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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.