Correlation Between Royce Opportunity and Small Cap

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

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

Diversification Opportunities for Royce Opportunity and Small Cap

0.9

Correlation Coefficient

Royce Opportunity  Small Cap

Almost no diversification

The 3 months correlation between Royce and Small is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Royce Opportunity Fund and Small Cap Value Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Value and Royce Opportunity 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 Opportunity Fund are associated (or correlated) with Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Value has no effect on the direction of Royce Opportunity i.e., Royce Opportunity and Small Cap go up and down completely randomly.

Pair Corralation between Royce Opportunity and Small Cap

Assuming the 90 days horizon Royce Opportunity Fund is expected to generate 1.25 times more return on investment than Small Cap. However, Royce Opportunity is 1.25 times more volatile than Small Cap Value Fund. It trades about -0.29 of its potential returns per unit of risk. Small Cap Value Fund is currently generating about -0.46 per unit of risk. If you would invest  1,606  in Royce Opportunity Fund on September 26, 2024 and sell it today you would lose (197.00) from holding Royce Opportunity Fund or give up 12.27% of portfolio value over 90 days.

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

Royce Opportunity Fund  vs.  Small Cap Value Fund

Royce Opportunity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Royce Opportunity Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Royce Opportunity is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Small Cap Value

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Small Cap Value Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Small Cap 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 Opportunity and Small Cap

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

The idea behind Royce Opportunity Fund and Small Cap Value Fund 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..