Correlation Between Royce Value and Tekla Life

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

By analyzing existing cross correlation between Royce Value Closed and Tekla Life Sciences, you can compare the effects of market volatilities on Royce Value and Tekla Life 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 Value with a short position of Tekla Life. Check out your portfolio center. Please also check ongoing floating volatility patterns of Royce Value and Tekla Life.

Diversification Opportunities for Royce Value and Tekla Life

0.53

Correlation Coefficient

Royce Value  Tekla Life

Very weak diversification

The 3 months correlation between Royce and Tekla is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Royce Value Closed and Tekla Life Sciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tekla Life Sciences and Royce Value 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 Value Closed are associated (or correlated) with Tekla Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tekla Life Sciences has no effect on the direction of Royce Value i.e., Royce Value and Tekla Life go up and down completely randomly.

Pair Corralation between Royce Value and Tekla Life

Considering the 90-day investment horizon Royce Value Closed is expected to under-perform the Tekla Life. But the stock apears to be less risky and, when comparing its historical volatility, Royce Value Closed is 1.1 times less risky than Tekla Life. The stock trades about -0.1 of its potential returns per unit of risk. The Tekla Life Sciences is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  1,306  in Tekla Life Sciences on December 27, 2024 and sell it today you would lose (5.00) from holding Tekla Life Sciences or give up 0.38% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.36%
Values	Daily Returns

Royce Value Closed  vs.  Tekla Life Sciences

Royce Value Closed

Risk-Adjusted Performance

Very Weak

Over the last 90 days Royce Value Closed has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Royce Value is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Tekla Life Sciences

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tekla Life Sciences has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Tekla Life is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Royce Value and Tekla Life

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

The idea behind Royce Value Closed and Tekla Life Sciences 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.