Correlation Between Royce Opportunity and Fidelity® Government

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

Diversification Opportunities for Royce Opportunity and Fidelity® Government

-0.37

Correlation Coefficient

Royce Opportunity  Fidelity® Government

Very good diversification

The 3 months correlation between Royce and Fidelity® is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Royce Opportunity Fund and Fidelity Government Money in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Government Money 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 Fidelity® Government. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Government Money has no effect on the direction of Royce Opportunity i.e., Royce Opportunity and Fidelity® Government go up and down completely randomly.

Pair Corralation between Royce Opportunity and Fidelity® Government

Assuming the 90 days horizon Royce Opportunity Fund is expected to under-perform the Fidelity® Government. In addition to that, Royce Opportunity is 10.32 times more volatile than Fidelity Government Money. It trades about -0.11 of its total potential returns per unit of risk. Fidelity Government Money is currently generating about 0.13 per unit of volatility. If you would invest  99.00  in Fidelity Government Money on December 22, 2024 and sell it today you would earn a total of  1.00  from holding Fidelity Government Money or generate 1.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

Royce Opportunity Fund  vs.  Fidelity Government Money

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.

Fidelity Government Money

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Government Money are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Fidelity® Government 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 Fidelity® Government

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

The idea behind Royce Opportunity Fund and Fidelity Government Money 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.