Correlation Between Royce Micro-cap and Federated Clover

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

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

Diversification Opportunities for Royce Micro-cap and Federated Clover

0.95

Correlation Coefficient

Royce Micro-cap  Federated Clover

Almost no diversification

The 3 months correlation between Royce and Federated is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Royce Micro Cap Fund and Federated Clover Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federated Clover Small and Royce Micro-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 Micro Cap Fund are associated (or correlated) with Federated Clover. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federated Clover Small has no effect on the direction of Royce Micro-cap i.e., Royce Micro-cap and Federated Clover go up and down completely randomly.

Pair Corralation between Royce Micro-cap and Federated Clover

Assuming the 90 days horizon Royce Micro Cap Fund is expected to under-perform the Federated Clover. In addition to that, Royce Micro-cap is 1.31 times more volatile than Federated Clover Small. It trades about -0.17 of its total potential returns per unit of risk. Federated Clover Small is currently generating about -0.08 per unit of volatility. If you would invest  2,414  in Federated Clover Small on December 29, 2024 and sell it today you would lose (132.00) from holding Federated Clover Small or give up 5.47% of portfolio value over 90 days.

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

Royce Micro Cap Fund  vs.  Federated Clover Small

Royce Micro Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Royce Micro Cap Fund 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 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.

Federated Clover Small

Risk-Adjusted Performance

Very Weak

Over the last 90 days Federated Clover Small has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Federated Clover 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 Micro-cap and Federated Clover

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

The idea behind Royce Micro Cap Fund and Federated Clover 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..