Correlation Between Royce International and International Opportunity

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

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

Diversification Opportunities for Royce International and International Opportunity

-0.16

Correlation Coefficient

Royce International  International Opportunity

Good diversification

The 3 months correlation between Royce and International is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Royce International Premier and International Opportunity Port in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Opportunity and Royce International 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 International Premier are associated (or correlated) with International Opportunity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Opportunity has no effect on the direction of Royce International i.e., Royce International and International Opportunity go up and down completely randomly.

Pair Corralation between Royce International and International Opportunity

Assuming the 90 days horizon Royce International Premier is expected to under-perform the International Opportunity. But the mutual fund apears to be less risky and, when comparing its historical volatility, Royce International Premier is 1.39 times less risky than International Opportunity. The mutual fund trades about -0.08 of its potential returns per unit of risk. The International Opportunity Portfolio is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  2,687  in International Opportunity Portfolio on September 14, 2024 and sell it today you would earn a total of  199.00  from holding International Opportunity Portfolio or generate 7.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Royce International Premier  vs.  International Opportunity Port

Royce International

Risk-Adjusted Performance

0 of 100

Very Weak

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

International Opportunity

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in International Opportunity Portfolio are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, International Opportunity may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Royce International and International Opportunity

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

The idea behind Royce International Premier and International Opportunity Portfolio 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..