Correlation Between Royce Dividend and Royce Small-cap

Can any of the company-specific risk be diversified away by investing in both Royce Dividend 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 Dividend 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 Dividend Value and Royce Small Cap Value, you can compare the effects of market volatilities on Royce Dividend 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 Dividend with a short position of Royce Small-cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Royce Dividend and Royce Small-cap.

Diversification Opportunities for Royce Dividend and Royce Small-cap

0.9

Correlation Coefficient

Royce Dividend  Royce Small-cap

Almost no diversification

The 3 months correlation between Royce and Royce is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Royce Dividend Value 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 Dividend 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 Dividend Value 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 Dividend i.e., Royce Dividend and Royce Small-cap go up and down completely randomly.

Pair Corralation between Royce Dividend and Royce Small-cap

Assuming the 90 days horizon Royce Dividend Value is expected to under-perform the Royce Small-cap. But the mutual fund apears to be less risky and, when comparing its historical volatility, Royce Dividend Value is 1.22 times less risky than Royce Small-cap. The mutual fund trades about -0.15 of its potential returns per unit of risk. The Royce Small Cap Value is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest  1,036  in Royce Small Cap Value on February 5, 2024 and sell it today you would lose (24.00) from holding Royce Small Cap Value or give up 2.32% of portfolio value over 90 days.

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

Royce Dividend Value  vs.  Royce Small Cap Value

Royce Dividend Value

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Royce Dividend Value are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Royce Dividend may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Royce Small Cap

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Royce Small Cap Value are ranked lower than 5 (%) 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 Dividend and Royce Small-cap

The main advantage of trading using opposite Royce Dividend and Royce Small-cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Royce Dividend 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 Dividend Value 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.