Correlation Between Royce Micro and RiverNorth Specialty

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

By analyzing existing cross correlation between Royce Micro Cap and RiverNorth Specialty Finance, you can compare the effects of market volatilities on Royce Micro and RiverNorth Specialty 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 Micro with a short position of RiverNorth Specialty. Check out your portfolio center. Please also check ongoing floating volatility patterns of Royce Micro and RiverNorth Specialty.

Diversification Opportunities for Royce Micro and RiverNorth Specialty

0.55

Correlation Coefficient

Royce Micro  RiverNorth Specialty

Very weak diversification

The 3 months correlation between Royce and RiverNorth is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Royce Micro Cap and RiverNorth Specialty Finance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RiverNorth Specialty and Royce Micro 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 Micro Cap are associated (or correlated) with RiverNorth Specialty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RiverNorth Specialty has no effect on the direction of Royce Micro i.e., Royce Micro and RiverNorth Specialty go up and down completely randomly.

Pair Corralation between Royce Micro and RiverNorth Specialty

Considering the 90-day investment horizon Royce Micro Cap is expected to under-perform the RiverNorth Specialty. In addition to that, Royce Micro is 1.93 times more volatile than RiverNorth Specialty Finance. It trades about -0.22 of its total potential returns per unit of risk. RiverNorth Specialty Finance is currently generating about 0.09 per unit of volatility. If you would invest  1,506  in RiverNorth Specialty Finance on September 24, 2024 and sell it today you would earn a total of  14.00  from holding RiverNorth Specialty Finance or generate 0.93% return on investment over 90 days.

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

Royce Micro Cap  vs.  RiverNorth Specialty Finance

Royce Micro Cap

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Royce Micro Cap are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable primary indicators, Royce Micro is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

RiverNorth Specialty

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in RiverNorth Specialty Finance are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, RiverNorth Specialty is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Royce Micro and RiverNorth Specialty

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

The idea behind Royce Micro Cap and RiverNorth Specialty Finance 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.