Correlation Between Resq Strategic and Royce Opportunity

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

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

Diversification Opportunities for Resq Strategic and Royce Opportunity

-0.33

Correlation Coefficient

Resq Strategic  Royce Opportunity

Very good diversification

The 3 months correlation between Resq and Royce is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Resq Strategic Income and Royce Opportunity Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royce Opportunity and Resq Strategic 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 Resq Strategic Income are associated (or correlated) with Royce Opportunity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royce Opportunity has no effect on the direction of Resq Strategic i.e., Resq Strategic and Royce Opportunity go up and down completely randomly.

Pair Corralation between Resq Strategic and Royce Opportunity

Assuming the 90 days horizon Resq Strategic Income is expected to under-perform the Royce Opportunity. But the mutual fund apears to be less risky and, when comparing its historical volatility, Resq Strategic Income is 1.79 times less risky than Royce Opportunity. The mutual fund trades about -0.14 of its potential returns per unit of risk. The Royce Opportunity Fund is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,432  in Royce Opportunity Fund on September 18, 2024 and sell it today you would earn a total of  34.00  from holding Royce Opportunity Fund or generate 2.37% return on investment over 90 days.

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

Resq Strategic Income  vs.  Royce Opportunity Fund

Resq Strategic Income

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Resq Strategic Income has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Royce Opportunity

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Royce Opportunity Fund are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Royce Opportunity is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Resq Strategic and Royce Opportunity

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

The idea behind Resq Strategic Income and Royce Opportunity 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.