Correlation Between Royce Opportunity and Perkins Small

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

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

Diversification Opportunities for Royce Opportunity and Perkins Small

0.75

Correlation Coefficient

Royce Opportunity  Perkins Small

Poor diversification

The 3 months correlation between Royce and Perkins is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Royce Opportunity Fund and Perkins Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Perkins Small Cap and Royce Opportunity 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 Opportunity Fund are associated (or correlated) with Perkins Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Perkins Small Cap has no effect on the direction of Royce Opportunity i.e., Royce Opportunity and Perkins Small go up and down completely randomly.

Pair Corralation between Royce Opportunity and Perkins Small

Assuming the 90 days horizon Royce Opportunity Fund is expected to generate 1.22 times more return on investment than Perkins Small. However, Royce Opportunity is 1.22 times more volatile than Perkins Small Cap. It trades about 0.03 of its potential returns per unit of risk. Perkins Small Cap is currently generating about 0.04 per unit of risk. If you would invest  1,218  in Royce Opportunity Fund on June 23, 2024 and sell it today you would earn a total of  233.00  from holding Royce Opportunity Fund or generate 19.13% return on investment over 90 days.

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

Royce Opportunity Fund  vs.  Perkins Small Cap

Royce Opportunity

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Royce Opportunity Fund are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Royce Opportunity is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Perkins Small Cap

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Perkins Small Cap are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Perkins Small may actually be approaching a critical reversion point that can send shares even higher in October 2024.

Pair Trading with Royce Opportunity and Perkins Small

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

The idea behind Royce Opportunity Fund and Perkins Small Cap 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.