Correlation Between Royce Total and Diversified Bond

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

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

Diversification Opportunities for Royce Total and Diversified Bond

-0.64

Correlation Coefficient

Royce Total  Diversified Bond

Excellent diversification

The 3 months correlation between Royce and Diversified is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Royce Total Return and Diversified Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diversified Bond and Royce Total 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 Total Return are associated (or correlated) with Diversified Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diversified Bond has no effect on the direction of Royce Total i.e., Royce Total and Diversified Bond go up and down completely randomly.

Pair Corralation between Royce Total and Diversified Bond

Assuming the 90 days horizon Royce Total Return is expected to generate 4.05 times more return on investment than Diversified Bond. However, Royce Total is 4.05 times more volatile than Diversified Bond Fund. It trades about 0.18 of its potential returns per unit of risk. Diversified Bond Fund is currently generating about -0.09 per unit of risk. If you would invest  781.00  in Royce Total Return on September 5, 2024 and sell it today you would earn a total of  114.00  from holding Royce Total Return or generate 14.6% return on investment over 90 days.

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

Royce Total Return  vs.  Diversified Bond Fund

Royce Total Return

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Royce Total Return 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 Total showed solid returns over the last few months and may actually be approaching a breakup point.

Diversified Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Diversified Bond Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Diversified Bond 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 Total and Diversified Bond

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

The idea behind Royce Total Return and Diversified Bond 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 Transaction History module to view history of all your transactions and understand their impact on performance.