Correlation Between Sierra Core and Royce Smaller-companie

Can any of the company-specific risk be diversified away by investing in both Sierra Core 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 Sierra Core 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 Sierra E Retirement and Royce Smaller Companies Growth, you can compare the effects of market volatilities on Sierra Core 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 Sierra Core with a short position of Royce Smaller-companie. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sierra Core and Royce Smaller-companie.

Diversification Opportunities for Sierra Core and Royce Smaller-companie

0.6

Correlation Coefficient

Sierra Core  Royce Smaller-companie

Poor diversification

The 3 months correlation between Sierra and Royce is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Sierra E Retirement 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 Sierra Core 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 Sierra E Retirement 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 Sierra Core i.e., Sierra Core and Royce Smaller-companie go up and down completely randomly.

Pair Corralation between Sierra Core and Royce Smaller-companie

Assuming the 90 days horizon Sierra E Retirement is expected to generate 0.4 times more return on investment than Royce Smaller-companie. However, Sierra E Retirement is 2.48 times less risky than Royce Smaller-companie. It trades about -0.21 of its potential returns per unit of risk. Royce Smaller Companies Growth is currently generating about -0.27 per unit of risk. If you would invest  2,326  in Sierra E Retirement on October 10, 2024 and sell it today you would lose (57.00) from holding Sierra E Retirement or give up 2.45% of portfolio value over 90 days.

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

Sierra E Retirement  vs.  Royce Smaller Companies Growth

Sierra E Retirement

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sierra E Retirement has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Sierra Core 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

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Royce Smaller Companies Growth are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Royce Smaller-companie is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Sierra Core and Royce Smaller-companie

The main advantage of trading using opposite Sierra Core and Royce Smaller-companie positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sierra Core 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 Sierra E Retirement 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.

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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.