Correlation Between Royce Micro and Royce Smaller

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

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

Diversification Opportunities for Royce Micro and Royce Smaller

0.95

Correlation Coefficient

Royce Micro  Royce Smaller

Almost no diversification

The 3 months correlation between Royce and Royce is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Royce Micro Cap Fund 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 Royce Micro 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 Micro Cap Fund 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 Royce Micro i.e., Royce Micro and Royce Smaller go up and down completely randomly.

Pair Corralation between Royce Micro and Royce Smaller

Assuming the 90 days horizon Royce Micro Cap Fund is expected to generate 0.91 times more return on investment than Royce Smaller. However, Royce Micro Cap Fund is 1.1 times less risky than Royce Smaller. It trades about 0.05 of its potential returns per unit of risk. Royce Smaller Companies Growth is currently generating about -0.05 per unit of risk. If you would invest  934.00  in Royce Micro Cap Fund on September 12, 2024 and sell it today you would earn a total of  11.00  from holding Royce Micro Cap Fund or generate 1.18% return on investment over 90 days.

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

Royce Micro Cap Fund  vs.  Royce Smaller Companies Growth

Royce Micro Cap

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Royce Micro Cap Fund are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Royce Micro showed solid returns over the last few months and may actually be approaching a breakup point.

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 Royce Micro and Royce Smaller

The main advantage of trading using opposite Royce Micro and Royce Smaller positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Royce Micro 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 Royce Micro Cap Fund 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.

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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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.