Correlation Between Royce Opportunity and Kinetics Small

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

Diversification Opportunities for Royce Opportunity and Kinetics Small

0.26

Correlation Coefficient

Royce Opportunity  Kinetics Small

Modest diversification

The 3 months correlation between Royce and Kinetics is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Royce Opportunity Fund and Kinetics Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kinetics Small Cap 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 Kinetics Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kinetics Small Cap has no effect on the direction of Royce Opportunity i.e., Royce Opportunity and Kinetics Small go up and down completely randomly.

Pair Corralation between Royce Opportunity and Kinetics Small

Assuming the 90 days horizon Royce Opportunity Fund is expected to under-perform the Kinetics Small. But the mutual fund apears to be less risky and, when comparing its historical volatility, Royce Opportunity Fund is 1.52 times less risky than Kinetics Small. The mutual fund trades about -0.11 of its potential returns per unit of risk. The Kinetics Small Cap is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  18,054  in Kinetics Small Cap on December 27, 2024 and sell it today you would earn a total of  1,453  from holding Kinetics Small Cap or generate 8.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

Royce Opportunity Fund  vs.  Kinetics Small Cap

Royce Opportunity

Risk-Adjusted Performance

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 latest weak performance, the Fund's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Kinetics Small Cap

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Kinetics Small Cap are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Kinetics Small may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Royce Opportunity and Kinetics Small

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

The idea behind Royce Opportunity Fund and Kinetics Small Cap 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.