Correlation Between Royce Smaller-companie and Sterling Capital

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

Diversification Opportunities for Royce Smaller-companie and Sterling Capital

0.77

Correlation Coefficient

Royce Smaller-companie  Sterling Capital

Poor diversification

The 3 months correlation between Royce and Sterling is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Royce Smaller Companies Growth and Sterling Capital Stratton in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sterling Capital Stratton 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 Sterling Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sterling Capital Stratton has no effect on the direction of Royce Smaller-companie i.e., Royce Smaller-companie and Sterling Capital go up and down completely randomly.

Pair Corralation between Royce Smaller-companie and Sterling Capital

Assuming the 90 days horizon Royce Smaller Companies Growth is expected to under-perform the Sterling Capital. In addition to that, Royce Smaller-companie is 1.4 times more volatile than Sterling Capital Stratton. It trades about -0.07 of its total potential returns per unit of risk. Sterling Capital Stratton is currently generating about -0.08 per unit of volatility. If you would invest  3,909  in Sterling Capital Stratton on December 21, 2024 and sell it today you would lose (204.00) from holding Sterling Capital Stratton or give up 5.22% of portfolio value over 90 days.

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

Royce Smaller Companies Growth  vs.  Sterling Capital Stratton

Royce Smaller Companies

Risk-Adjusted Performance

Very Weak

Over the last 90 days Royce Smaller Companies Growth 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.

Sterling Capital Stratton

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sterling Capital Stratton has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Sterling Capital 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 Sterling Capital

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

The idea behind Royce Smaller Companies Growth and Sterling Capital Stratton 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.