Correlation Between Royce Smaller and Fidelity Capital

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

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

Diversification Opportunities for Royce Smaller and Fidelity Capital

0.96

Correlation Coefficient

Royce Smaller  Fidelity Capital

Almost no diversification

The 3 months correlation between Royce and Fidelity is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Royce Smaller Companies Growth and Fidelity Capital Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Capital Income and Royce Smaller 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 Smaller Companies Growth are associated (or correlated) with Fidelity Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Capital Income has no effect on the direction of Royce Smaller i.e., Royce Smaller and Fidelity Capital go up and down completely randomly.

Pair Corralation between Royce Smaller and Fidelity Capital

Assuming the 90 days horizon Royce Smaller Companies Growth is expected to generate 5.74 times more return on investment than Fidelity Capital. However, Royce Smaller is 5.74 times more volatile than Fidelity Capital Income. It trades about 0.15 of its potential returns per unit of risk. Fidelity Capital Income is currently generating about 0.29 per unit of risk. If you would invest  750.00  in Royce Smaller Companies Growth on September 13, 2024 and sell it today you would earn a total of  98.00  from holding Royce Smaller Companies Growth or generate 13.07% return on investment over 90 days.

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

Royce Smaller Companies Growth  vs.  Fidelity Capital Income

Royce Smaller Companies

Risk-Adjusted Performance

11 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Royce Smaller Companies Growth are ranked lower than 11 (%) 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.

Fidelity Capital Income

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Capital Income are ranked lower than 22 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Fidelity Capital is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Royce Smaller and Fidelity Capital

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

The idea behind Royce Smaller Companies Growth and Fidelity Capital Income 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.