Correlation Between IShares SP and Royce Quant

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

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

Diversification Opportunities for IShares SP and Royce Quant

1.0

Correlation Coefficient

IShares SP  Royce Quant

No risk reduction

The 3 months correlation between IShares and Royce is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding iShares SP Small Cap and Royce Quant Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royce Quant Small and IShares SP 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 iShares SP Small Cap are associated (or correlated) with Royce Quant. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royce Quant Small has no effect on the direction of IShares SP i.e., IShares SP and Royce Quant go up and down completely randomly.

Pair Corralation between IShares SP and Royce Quant

Considering the 90-day investment horizon iShares SP Small Cap is expected to generate 0.97 times more return on investment than Royce Quant. However, iShares SP Small Cap is 1.03 times less risky than Royce Quant. It trades about 0.12 of its potential returns per unit of risk. Royce Quant Small Cap is currently generating about 0.11 per unit of risk. If you would invest  10,668  in iShares SP Small Cap on August 30, 2024 and sell it today you would earn a total of  1,043  from holding iShares SP Small Cap or generate 9.78% return on investment over 90 days.

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

iShares SP Small Cap  vs.  Royce Quant Small Cap

iShares SP Small

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares SP Small Cap are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain forward-looking indicators, IShares SP may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Royce Quant Small

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Royce Quant Small Cap are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal essential indicators, Royce Quant may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with IShares SP and Royce Quant

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

The idea behind iShares SP Small Cap and Royce Quant 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.