Correlation Between Royce Pennsylvania and Royce Opportunity

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

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

Diversification Opportunities for Royce Pennsylvania and Royce Opportunity

0.93

Correlation Coefficient

Royce Pennsylvania  Royce Opportunity

Almost no diversification

The 3 months correlation between Royce and Royce is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Royce Pennsylvania Mutual and Royce Opportunity Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royce Opportunity and Royce Pennsylvania 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 Pennsylvania Mutual are associated (or correlated) with Royce Opportunity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royce Opportunity has no effect on the direction of Royce Pennsylvania i.e., Royce Pennsylvania and Royce Opportunity go up and down completely randomly.

Pair Corralation between Royce Pennsylvania and Royce Opportunity

Assuming the 90 days horizon Royce Pennsylvania Mutual is expected to under-perform the Royce Opportunity. In addition to that, Royce Pennsylvania is 1.0 times more volatile than Royce Opportunity Fund. It trades about -0.15 of its total potential returns per unit of risk. Royce Opportunity Fund is currently generating about -0.05 per unit of volatility. If you would invest  1,430  in Royce Opportunity Fund on September 17, 2024 and sell it today you would lose (35.00) from holding Royce Opportunity Fund or give up 2.45% of portfolio value over 90 days.

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

Royce Pennsylvania Mutual  vs.  Royce Opportunity Fund

Royce Pennsylvania Mutual

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Royce Pennsylvania Mutual has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Royce Pennsylvania is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Royce Opportunity

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Royce Opportunity Fund are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Royce Opportunity 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 Pennsylvania and Royce Opportunity

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

The idea behind Royce Pennsylvania Mutual and Royce Opportunity 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.

Check out your portfolio center.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.