Correlation Between Royce Special and Growth Portfolio

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

By analyzing existing cross correlation between Royce Special Equity and Growth Portfolio Class, you can compare the effects of market volatilities on Royce Special and Growth Portfolio 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 Special with a short position of Growth Portfolio. Check out your portfolio center. Please also check ongoing floating volatility patterns of Royce Special and Growth Portfolio.

Diversification Opportunities for Royce Special and Growth Portfolio

0.23

Correlation Coefficient

Royce Special  Growth Portfolio

Modest diversification

The 3 months correlation between Royce and Growth is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Royce Special Equity and Growth Portfolio Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Growth Portfolio Class and Royce Special 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 Special Equity are associated (or correlated) with Growth Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Growth Portfolio Class has no effect on the direction of Royce Special i.e., Royce Special and Growth Portfolio go up and down completely randomly.

Pair Corralation between Royce Special and Growth Portfolio

Assuming the 90 days horizon Royce Special Equity is expected to under-perform the Growth Portfolio. In addition to that, Royce Special is 1.16 times more volatile than Growth Portfolio Class. It trades about -0.1 of its total potential returns per unit of risk. Growth Portfolio Class is currently generating about 0.25 per unit of volatility. If you would invest  4,355  in Growth Portfolio Class on September 20, 2024 and sell it today you would earn a total of  1,406  from holding Growth Portfolio Class or generate 32.28% return on investment over 90 days.

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

Royce Special Equity  vs.  Growth Portfolio Class

Royce Special Equity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Royce Special Equity has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's forward indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Growth Portfolio Class

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Growth Portfolio Class are ranked lower than 19 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Growth Portfolio showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Royce Special and Growth Portfolio

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

The idea behind Royce Special Equity and Growth Portfolio Class 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.