Correlation Between Royce Smaller and Royce Special

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

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

Diversification Opportunities for Royce Smaller and Royce Special

0.78

Correlation Coefficient

Royce Smaller  Royce Special

Poor diversification

The 3 months correlation between Royce and Royce is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Royce Smaller Companies Growth and Royce Special Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royce Special Equity and Royce Smaller 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 Smaller Companies Growth are associated (or correlated) with Royce Special. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royce Special Equity has no effect on the direction of Royce Smaller i.e., Royce Smaller and Royce Special go up and down completely randomly.

Pair Corralation between Royce Smaller and Royce Special

Assuming the 90 days horizon Royce Smaller Companies Growth is expected to generate 0.65 times more return on investment than Royce Special. However, Royce Smaller Companies Growth is 1.55 times less risky than Royce Special. It trades about 0.13 of its potential returns per unit of risk. Royce Special Equity is currently generating about -0.05 per unit of risk. If you would invest  756.00  in Royce Smaller Companies Growth on September 17, 2024 and sell it today you would earn a total of  83.00  from holding Royce Smaller Companies Growth or generate 10.98% return on investment over 90 days.

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

Royce Smaller Companies Growth  vs.  Royce Special Equity

Royce Smaller Companies

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Royce Smaller Companies Growth are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Royce Smaller may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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 latest weak performance, the Fund's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Royce Smaller and Royce Special

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

The idea behind Royce Smaller Companies Growth and Royce Special Equity 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.