Correlation Between Royce Global and Royce Small-cap

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

By analyzing existing cross correlation between Royce Global Financial and Royce Small Cap Value, you can compare the effects of market volatilities on Royce Global and Royce Small-cap 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 Global with a short position of Royce Small-cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Royce Global and Royce Small-cap.

Diversification Opportunities for Royce Global and Royce Small-cap

0.87

Correlation Coefficient

Royce Global  Royce Small-cap

Very poor diversification

The 3 months correlation between Royce and Royce is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Royce Global Financial and Royce Small Cap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royce Small Cap and Royce Global 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 Global Financial are associated (or correlated) with Royce Small-cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royce Small Cap has no effect on the direction of Royce Global i.e., Royce Global and Royce Small-cap go up and down completely randomly.

Pair Corralation between Royce Global and Royce Small-cap

Assuming the 90 days horizon Royce Global Financial is expected to generate 0.85 times more return on investment than Royce Small-cap. However, Royce Global Financial is 1.18 times less risky than Royce Small-cap. It trades about 0.12 of its potential returns per unit of risk. Royce Small Cap Value is currently generating about 0.09 per unit of risk. If you would invest  888.00  in Royce Global Financial on February 6, 2024 and sell it today you would earn a total of  188.00  from holding Royce Global Financial or generate 21.17% return on investment over 90 days.

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

Royce Global Financial  vs.  Royce Small Cap Value

Royce Global Financial

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Royce Global Financial are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Royce Global is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Royce Small Cap

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Royce Small Cap Value 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, Royce Small-cap 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 Global and Royce Small-cap

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

The idea behind Royce Global Financial and Royce Small Cap Value 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.