Correlation Between Royce Smaller-companie and Perritt Microcap

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

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

Diversification Opportunities for Royce Smaller-companie and Perritt Microcap

0.63

Correlation Coefficient

Royce Smaller-companie  Perritt Microcap

Poor diversification

The 3 months correlation between Royce and Perritt is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Royce Smaller Companies Growth and Perritt Microcap Opportunities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Perritt Microcap Opp and Royce Smaller-companie 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 Smaller Companies Growth are associated (or correlated) with Perritt Microcap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Perritt Microcap Opp has no effect on the direction of Royce Smaller-companie i.e., Royce Smaller-companie and Perritt Microcap go up and down completely randomly.

Pair Corralation between Royce Smaller-companie and Perritt Microcap

Assuming the 90 days horizon Royce Smaller Companies Growth is expected to generate 1.21 times more return on investment than Perritt Microcap. However, Royce Smaller-companie is 1.21 times more volatile than Perritt Microcap Opportunities. It trades about 0.08 of its potential returns per unit of risk. Perritt Microcap Opportunities is currently generating about 0.06 per unit of risk. If you would invest  750.00  in Royce Smaller Companies Growth on October 25, 2024 and sell it today you would earn a total of  50.00  from holding Royce Smaller Companies Growth or generate 6.67% return on investment over 90 days.

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

Royce Smaller Companies Growth  vs.  Perritt Microcap Opportunities

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 basic indicators, Royce Smaller-companie may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Perritt Microcap Opp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Perritt Microcap Opportunities are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Perritt Microcap 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 Smaller-companie and Perritt Microcap

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

The idea behind Royce Smaller Companies Growth and Perritt Microcap Opportunities 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.

Check out your portfolio center.

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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.