Correlation Between Royce Small-cap and Jpmorgan Equity

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

Diversification Opportunities for Royce Small-cap and Jpmorgan Equity

0.82

Correlation Coefficient

Royce Small-cap  Jpmorgan Equity

Very poor diversification

The 3 months correlation between Royce and JPMORGAN is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Royce Small Cap Value and Jpmorgan Equity Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jpmorgan Equity Income 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 Jpmorgan Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jpmorgan Equity Income has no effect on the direction of Royce Small-cap i.e., Royce Small-cap and Jpmorgan Equity go up and down completely randomly.

Pair Corralation between Royce Small-cap and Jpmorgan Equity

Assuming the 90 days horizon Royce Small Cap Value is expected to generate 1.91 times more return on investment than Jpmorgan Equity. However, Royce Small-cap is 1.91 times more volatile than Jpmorgan Equity Income. It trades about 0.13 of its potential returns per unit of risk. Jpmorgan Equity Income is currently generating about 0.19 per unit of risk. If you would invest  1,048  in Royce Small Cap Value on September 4, 2024 and sell it today you would earn a total of  109.00  from holding Royce Small Cap Value or generate 10.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

Royce Small Cap Value  vs.  Jpmorgan Equity Income

Royce Small Cap

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Royce Small Cap Value are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical indicators, Royce Small-cap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Jpmorgan Equity Income

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Jpmorgan Equity Income are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Jpmorgan Equity may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Royce Small-cap and Jpmorgan Equity

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

The idea behind Royce Small Cap Value and Jpmorgan Equity Income 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.