Correlation Between Royce Opportunity and Vanguard Small-cap

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

Diversification Opportunities for Royce Opportunity and Vanguard Small-cap

0.92

Correlation Coefficient

Royce Opportunity  Vanguard Small-cap

Almost no diversification

The 3 months correlation between Royce and Vanguard is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Royce Opportunity Fund and Vanguard Small Cap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard 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 Vanguard 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 Vanguard Small Cap has no effect on the direction of Royce Opportunity i.e., Royce Opportunity and Vanguard Small-cap go up and down completely randomly.

Pair Corralation between Royce Opportunity and Vanguard Small-cap

Assuming the 90 days horizon Royce Opportunity Fund is expected to generate 1.35 times more return on investment than Vanguard Small-cap. However, Royce Opportunity is 1.35 times more volatile than Vanguard Small Cap Value. It trades about 0.18 of its potential returns per unit of risk. Vanguard Small Cap Value is currently generating about 0.18 per unit of risk. If you would invest  1,395  in Royce Opportunity Fund on September 5, 2024 and sell it today you would earn a total of  221.00  from holding Royce Opportunity Fund or generate 15.84% return on investment over 90 days.

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

Royce Opportunity Fund  vs.  Vanguard Small Cap Value

Royce Opportunity

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Royce Opportunity Fund are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Royce Opportunity showed solid returns over the last few months and may actually be approaching a breakup point.

Vanguard Small Cap

Risk-Adjusted Performance

14 of 100

Good

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

Pair Trading with Royce Opportunity and Vanguard Small-cap

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

The idea behind Royce Opportunity Fund and Vanguard Small Cap Value 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.