Correlation Between Royce Small-cap and Lebenthal Lisanti

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

By analyzing existing cross correlation between Royce Small Cap Value and Lebenthal Lisanti Small, you can compare the effects of market volatilities on Royce Small-cap and Lebenthal Lisanti 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 Small-cap with a short position of Lebenthal Lisanti. Check out your portfolio center. Please also check ongoing floating volatility patterns of Royce Small-cap and Lebenthal Lisanti.

Diversification Opportunities for Royce Small-cap and Lebenthal Lisanti

0.98

Correlation Coefficient

Royce Small-cap  Lebenthal Lisanti

Almost no diversification

The 3 months correlation between Royce and Lebenthal is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Royce Small Cap Value and Lebenthal Lisanti Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lebenthal Lisanti Small and Royce Small-cap 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 Small Cap Value are associated (or correlated) with Lebenthal Lisanti. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lebenthal Lisanti Small has no effect on the direction of Royce Small-cap i.e., Royce Small-cap and Lebenthal Lisanti go up and down completely randomly.

Pair Corralation between Royce Small-cap and Lebenthal Lisanti

Assuming the 90 days horizon Royce Small Cap Value is expected to generate 0.64 times more return on investment than Lebenthal Lisanti. However, Royce Small Cap Value is 1.57 times less risky than Lebenthal Lisanti. It trades about -0.16 of its potential returns per unit of risk. Lebenthal Lisanti Small is currently generating about -0.19 per unit of risk. If you would invest  1,003  in Royce Small Cap Value on December 29, 2024 and sell it today you would lose (106.00) from holding Royce Small Cap Value or give up 10.57% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.39%
Values	Daily Returns

Royce Small Cap Value  vs.  Lebenthal Lisanti Small

Royce Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Royce Small Cap Value has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Lebenthal Lisanti Small

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lebenthal Lisanti Small 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 technical and fundamental indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Royce Small-cap and Lebenthal Lisanti

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

The idea behind Royce Small Cap Value and Lebenthal Lisanti Small 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.