Correlation Between Royce Global and DWS Municipal

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

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

Diversification Opportunities for Royce Global and DWS Municipal

0.57

Correlation Coefficient

Royce Global  DWS Municipal

Very weak diversification

The 3 months correlation between Royce and DWS is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Royce Global Value and DWS Municipal Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DWS Municipal Income and Royce Global 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 Royce Global Value are associated (or correlated) with DWS Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DWS Municipal Income has no effect on the direction of Royce Global i.e., Royce Global and DWS Municipal go up and down completely randomly.

Pair Corralation between Royce Global and DWS Municipal

Considering the 90-day investment horizon Royce Global Value is expected to generate 1.85 times more return on investment than DWS Municipal. However, Royce Global is 1.85 times more volatile than DWS Municipal Income. It trades about -0.01 of its potential returns per unit of risk. DWS Municipal Income is currently generating about -0.06 per unit of risk. If you would invest  1,076  in Royce Global Value on December 18, 2024 and sell it today you would lose (10.00) from holding Royce Global Value or give up 0.93% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.33%
Values	Daily Returns

Royce Global Value  vs.  DWS Municipal Income

Royce Global Value

Risk-Adjusted Performance

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.

DWS Municipal Income

Risk-Adjusted Performance

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.

Pair Trading with Royce Global and DWS Municipal

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

The idea behind Royce Global Value and DWS Municipal Income 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.