Correlation Between Pax High and Royce Smaller

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

By analyzing existing cross correlation between Pax High Yield and Royce Smaller Companies Growth, you can compare the effects of market volatilities on Pax High and Royce Smaller 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 Pax High with a short position of Royce Smaller. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pax High and Royce Smaller.

Diversification Opportunities for Pax High and Royce Smaller

0.52

Correlation Coefficient

Pax High  Royce Smaller

Very weak diversification

The 3 months correlation between Pax and Royce is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Pax High Yield and Royce Smaller Companies Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royce Smaller Companies and Pax High 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 Pax High Yield are associated (or correlated) with Royce Smaller. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royce Smaller Companies has no effect on the direction of Pax High i.e., Pax High and Royce Smaller go up and down completely randomly.

Pair Corralation between Pax High and Royce Smaller

Assuming the 90 days horizon Pax High is expected to generate 15.77 times less return on investment than Royce Smaller. But when comparing it to its historical volatility, Pax High Yield is 8.58 times less risky than Royce Smaller. It trades about 0.13 of its potential returns per unit of risk. Royce Smaller Companies Growth is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  737.00  in Royce Smaller Companies Growth on September 12, 2024 and sell it today you would earn a total of  145.00  from holding Royce Smaller Companies Growth or generate 19.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Pax High Yield  vs.  Royce Smaller Companies Growth

Pax High Yield

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Pax High Yield are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Pax High is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Royce Smaller Companies

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Royce Smaller Companies Growth are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Royce Smaller showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pax High and Royce Smaller

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

The idea behind Pax High Yield and Royce Smaller Companies Growth 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.

Check out your portfolio center.

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 Anywhere module to track or share privately all of your investments from the convenience of any device.