Correlation Between Royce Premier and The Fairholme

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

By analyzing existing cross correlation between Royce Premier Fund and The Fairholme Fund, you can compare the effects of market volatilities on Royce Premier and The Fairholme 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 Premier with a short position of The Fairholme. Check out your portfolio center. Please also check ongoing floating volatility patterns of Royce Premier and The Fairholme.

Diversification Opportunities for Royce Premier and The Fairholme

0.45

Correlation Coefficient

Royce Premier  The Fairholme

Very weak diversification

The 3 months correlation between Royce and The is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Royce Premier Fund and The Fairholme Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on The Fairholme and Royce Premier 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 Premier Fund are associated (or correlated) with The Fairholme. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of The Fairholme has no effect on the direction of Royce Premier i.e., Royce Premier and The Fairholme go up and down completely randomly.

Pair Corralation between Royce Premier and The Fairholme

Assuming the 90 days horizon Royce Premier Fund is expected to under-perform the The Fairholme. In addition to that, Royce Premier is 1.79 times more volatile than The Fairholme Fund. It trades about -0.36 of its total potential returns per unit of risk. The Fairholme Fund is currently generating about -0.31 per unit of volatility. If you would invest  3,172  in The Fairholme Fund on October 9, 2024 and sell it today you would lose (224.00) from holding The Fairholme Fund or give up 7.06% of portfolio value over 90 days.

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

Royce Premier Fund  vs.  The Fairholme Fund

Royce Premier

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Royce Premier Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

The Fairholme

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Fairholme Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Royce Premier and The Fairholme

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

The idea behind Royce Premier Fund and The Fairholme 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.