Correlation Between Madison Mid and Royce Premier

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

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

Diversification Opportunities for Madison Mid and Royce Premier

0.9

Correlation Coefficient

Madison Mid  Royce Premier

Almost no diversification

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

Pair Corralation between Madison Mid and Royce Premier

Assuming the 90 days horizon Madison Mid Cap is expected to generate 0.57 times more return on investment than Royce Premier. However, Madison Mid Cap is 1.74 times less risky than Royce Premier. It trades about 0.11 of its potential returns per unit of risk. Royce Premier Fund is currently generating about -0.02 per unit of risk. If you would invest  1,712  in Madison Mid Cap on September 13, 2024 and sell it today you would earn a total of  100.00  from holding Madison Mid Cap or generate 5.84% return on investment over 90 days.

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

Madison Mid Cap  vs.  Royce Premier Fund

Madison Mid Cap

Risk-Adjusted Performance

8 of 100

OK

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

Royce Premier

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Royce Premier Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Royce Premier is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Madison Mid and Royce Premier

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

The idea behind Madison Mid Cap and Royce Premier Fund 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.