Correlation Between Royce Opportunity and Stock Index

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

Diversification Opportunities for Royce Opportunity and Stock Index

0.93

Correlation Coefficient

Royce Opportunity  Stock Index

Almost no diversification

The 3 months correlation between Royce and Stock is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Royce Opportunity Fund and Stock Index Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stock Index Fund 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 Stock Index. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stock Index Fund has no effect on the direction of Royce Opportunity i.e., Royce Opportunity and Stock Index go up and down completely randomly.

Pair Corralation between Royce Opportunity and Stock Index

Assuming the 90 days horizon Royce Opportunity Fund is expected to under-perform the Stock Index. In addition to that, Royce Opportunity is 1.34 times more volatile than Stock Index Fund. It trades about -0.14 of its total potential returns per unit of risk. Stock Index Fund is currently generating about -0.07 per unit of volatility. If you would invest  5,907  in Stock Index Fund on December 28, 2024 and sell it today you would lose (294.00) from holding Stock Index Fund or give up 4.98% of portfolio value over 90 days.

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

Royce Opportunity Fund  vs.  Stock Index Fund

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.

Stock Index Fund

Risk-Adjusted Performance

Very Weak

Over the last 90 days Stock Index Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Stock Index 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 Stock Index

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

The idea behind Royce Opportunity Fund and Stock Index 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.