Correlation Between Royce Opportunity and Multifactor Equity

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

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

Diversification Opportunities for Royce Opportunity and Multifactor Equity

0.94

Correlation Coefficient

Royce Opportunity  Multifactor Equity

Almost no diversification

The 3 months correlation between Royce and Multifactor is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Royce Opportunity Fund and Multifactor Equity Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Multifactor Equity and Royce Opportunity 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 Opportunity Fund are associated (or correlated) with Multifactor Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Multifactor Equity has no effect on the direction of Royce Opportunity i.e., Royce Opportunity and Multifactor Equity go up and down completely randomly.

Pair Corralation between Royce Opportunity and Multifactor Equity

Assuming the 90 days horizon Royce Opportunity Fund is expected to generate 1.9 times more return on investment than Multifactor Equity. However, Royce Opportunity is 1.9 times more volatile than Multifactor Equity Fund. It trades about 0.18 of its potential returns per unit of risk. Multifactor Equity Fund is currently generating about 0.2 per unit of risk. If you would invest  1,388  in Royce Opportunity Fund on September 12, 2024 and sell it today you would earn a total of  206.00  from holding Royce Opportunity Fund or generate 14.84% return on investment over 90 days.

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

Royce Opportunity Fund  vs.  Multifactor Equity Fund

Royce Opportunity

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Royce Opportunity Fund are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Royce Opportunity showed solid returns over the last few months and may actually be approaching a breakup point.

Multifactor Equity

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Multifactor Equity Fund are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Multifactor Equity may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Royce Opportunity and Multifactor Equity

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

The idea behind Royce Opportunity Fund and Multifactor Equity 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.

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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.