Correlation Between Royce Micro-cap and Royce Smaller-companie

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

By analyzing existing cross correlation between Royce Micro Cap Fund and Royce Smaller Companies Growth, you can compare the effects of market volatilities on Royce Micro-cap and Royce Smaller-companie 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 Micro-cap with a short position of Royce Smaller-companie. Check out your portfolio center. Please also check ongoing floating volatility patterns of Royce Micro-cap and Royce Smaller-companie.

Diversification Opportunities for Royce Micro-cap and Royce Smaller-companie

0.89

Correlation Coefficient

Royce Micro-cap  Royce Smaller-companie

Very poor diversification

The 3 months correlation between Royce and Royce is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Royce Micro Cap Fund and Royce Smaller Companies Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royce Smaller Companies and Royce Micro-cap 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 Micro Cap Fund are associated (or correlated) with Royce Smaller-companie. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royce Smaller Companies has no effect on the direction of Royce Micro-cap i.e., Royce Micro-cap and Royce Smaller-companie go up and down completely randomly.

Pair Corralation between Royce Micro-cap and Royce Smaller-companie

Assuming the 90 days horizon Royce Micro Cap Fund is expected to under-perform the Royce Smaller-companie. In addition to that, Royce Micro-cap is 1.41 times more volatile than Royce Smaller Companies Growth. It trades about 0.0 of its total potential returns per unit of risk. Royce Smaller Companies Growth is currently generating about 0.08 per unit of volatility. If you would invest  781.00  in Royce Smaller Companies Growth on October 25, 2024 and sell it today you would earn a total of  51.00  from holding Royce Smaller Companies Growth or generate 6.53% return on investment over 90 days.

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

Royce Micro Cap Fund  vs.  Royce Smaller Companies Growth

Royce Micro Cap

Risk-Adjusted Performance

0 of 100

Very Weak

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

Royce Smaller Companies

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Royce Smaller Companies Growth are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical indicators, Royce Smaller-companie may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Royce Micro-cap and Royce Smaller-companie

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

The idea behind Royce Micro Cap Fund and Royce Smaller Companies Growth 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.