Correlation Between Royce Total and Longleaf Partners

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

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

Diversification Opportunities for Royce Total and Longleaf Partners

0.48

Correlation Coefficient

Royce Total  Longleaf Partners

Very weak diversification

The 3 months correlation between Royce and Longleaf is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Royce Total Return and Longleaf Partners Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Longleaf Partners and Royce Total 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 Total Return are associated (or correlated) with Longleaf Partners. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Longleaf Partners has no effect on the direction of Royce Total i.e., Royce Total and Longleaf Partners go up and down completely randomly.

Pair Corralation between Royce Total and Longleaf Partners

Assuming the 90 days horizon Royce Total Return is expected to under-perform the Longleaf Partners. In addition to that, Royce Total is 1.67 times more volatile than Longleaf Partners Fund. It trades about -0.16 of its total potential returns per unit of risk. Longleaf Partners Fund is currently generating about -0.15 per unit of volatility. If you would invest  2,536  in Longleaf Partners Fund on December 2, 2024 and sell it today you would lose (159.00) from holding Longleaf Partners Fund or give up 6.27% of portfolio value over 90 days.

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

Royce Total Return  vs.  Longleaf Partners Fund

Royce Total Return

Risk-Adjusted Performance

Very Weak

Over the last 90 days Royce Total Return 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.

Longleaf Partners

Risk-Adjusted Performance

Very Weak

Over the last 90 days Longleaf Partners 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.

Pair Trading with Royce Total and Longleaf Partners

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

The idea behind Royce Total Return and Longleaf Partners 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.