Correlation Between Royce Premier and Schwab Small-cap

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

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

Diversification Opportunities for Royce Premier and Schwab Small-cap

0.75

Correlation Coefficient

Royce Premier  Schwab Small-cap

Poor diversification

The 3 months correlation between Royce and Schwab is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Royce Premier Fund and Schwab Small Cap Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Small Cap and Royce Premier 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 Premier Fund are associated (or correlated) with Schwab Small-cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab Small Cap has no effect on the direction of Royce Premier i.e., Royce Premier and Schwab Small-cap go up and down completely randomly.

Pair Corralation between Royce Premier and Schwab Small-cap

Assuming the 90 days horizon Royce Premier Fund is expected to under-perform the Schwab Small-cap. In addition to that, Royce Premier is 1.56 times more volatile than Schwab Small Cap Index. It trades about -0.37 of its total potential returns per unit of risk. Schwab Small Cap Index is currently generating about -0.25 per unit of volatility. If you would invest  3,888  in Schwab Small Cap Index on October 9, 2024 and sell it today you would lose (258.00) from holding Schwab Small Cap Index or give up 6.64% of portfolio value over 90 days.

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

Royce Premier Fund  vs.  Schwab Small Cap Index

Royce Premier

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Royce Premier Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Schwab Small Cap

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab Small Cap Index are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Schwab Small-cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Royce Premier and Schwab Small-cap

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

The idea behind Royce Premier Fund and Schwab Small Cap Index 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.