Correlation Between Royce Value and Tri Continental

Can any of the company-specific risk be diversified away by investing in both Royce Value and Tri Continental 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 Tri Continental 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 Tri Continental Closed, you can compare the effects of market volatilities on Royce Value and Tri Continental 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 Tri Continental. Check out your portfolio center. Please also check ongoing floating volatility patterns of Royce Value and Tri Continental.

Diversification Opportunities for Royce Value and Tri Continental

0.86

Correlation Coefficient

Royce Value  Tri Continental

Very poor diversification

The 3 months correlation between Royce and Tri is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Royce Value Closed and Tri Continental Closed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tri Continental Closed 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 Tri Continental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tri Continental Closed has no effect on the direction of Royce Value i.e., Royce Value and Tri Continental go up and down completely randomly.

Pair Corralation between Royce Value and Tri Continental

Considering the 90-day investment horizon Royce Value Closed is expected to under-perform the Tri Continental. In addition to that, Royce Value is 1.32 times more volatile than Tri Continental Closed. It trades about -0.09 of its total potential returns per unit of risk. Tri Continental Closed is currently generating about -0.02 per unit of volatility. If you would invest  3,175  in Tri Continental Closed on December 26, 2024 and sell it today you would lose (39.00) from holding Tri Continental Closed or give up 1.23% of portfolio value over 90 days.

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

Royce Value Closed  vs.  Tri Continental Closed

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.

Tri Continental Closed

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tri Continental Closed has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Tri Continental 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 Value and Tri Continental

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

The idea behind Royce Value Closed and Tri Continental Closed 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.