Correlation Between Royce Value and First Trust
Can any of the company-specific risk be diversified away by investing in both Royce Value and First Trust 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 Value and First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Royce Value Closed and First Trust Specialty, you can compare the effects of market volatilities on Royce Value and First Trust 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 Value with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Royce Value and First Trust.
Diversification Opportunities for Royce Value and First Trust
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Royce and First is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Royce Value Closed and First Trust Specialty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Specialty and Royce Value 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 Value Closed are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Specialty has no effect on the direction of Royce Value i.e., Royce Value and First Trust go up and down completely randomly.
Pair Corralation between Royce Value and First Trust
Considering the 90-day investment horizon Royce Value is expected to generate 1.44 times less return on investment than First Trust. In addition to that, Royce Value is 1.03 times more volatile than First Trust Specialty. It trades about 0.08 of its total potential returns per unit of risk. First Trust Specialty is currently generating about 0.11 per unit of volatility. If you would invest 267.00 in First Trust Specialty on September 2, 2024 and sell it today you would earn a total of 161.00 from holding First Trust Specialty or generate 60.3% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Royce Value Closed vs. First Trust Specialty
Performance |
| Timeline |
| Royce Value Closed |
| First Trust Specialty |
Royce Value and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Royce Value and First Trust
The main advantage of trading using opposite Royce Value and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Royce Value position performs unexpectedly, First Trust 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 First Trust will offset losses from the drop in First Trust's long position.| Royce Value vs. Visa Class A | Royce Value vs. Diamond Hill Investment | Royce Value vs. Distoken Acquisition | Royce Value vs. Associated Capital Group |
| First Trust vs. MFS High Income | First Trust vs. MFS High Yield | First Trust vs. Blackrock Muniholdings Quality | First Trust vs. MFS Government Markets |
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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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