Correlation Between Central Securities and Royce Value

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

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

Diversification Opportunities for Central Securities and Royce Value

0.9

Correlation Coefficient

Central Securities  Royce Value

Almost no diversification

The 3 months correlation between Central and Royce is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Central Securities and Royce Value Closed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royce Value Closed and Central Securities 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 Central Securities are associated (or correlated) with Royce Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royce Value Closed has no effect on the direction of Central Securities i.e., Central Securities and Royce Value go up and down completely randomly.

Pair Corralation between Central Securities and Royce Value

Considering the 90-day investment horizon Central Securities is expected to generate 1.28 times less return on investment than Royce Value. But when comparing it to its historical volatility, Central Securities is 1.79 times less risky than Royce Value. It trades about 0.22 of its potential returns per unit of risk. Royce Value Closed is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  1,478  in Royce Value Closed on September 3, 2024 and sell it today you would earn a total of  187.00  from holding Royce Value Closed or generate 12.65% return on investment over 90 days.

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

Central Securities  vs.  Royce Value Closed

Central Securities

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Central Securities are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, Central Securities may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Royce Value Closed

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Royce Value Closed are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Royce Value may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Central Securities and Royce Value

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

The idea behind Central Securities and Royce Value Closed 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.