Correlation Between Royce Special and Small Cap

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

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

Diversification Opportunities for Royce Special and Small Cap

0.95

Correlation Coefficient

Royce Special  Small Cap

Almost no diversification

The 3 months correlation between Royce and Small is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Royce Special Equity and Small Cap Value Series in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Value and Royce Special 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 Special Equity are associated (or correlated) with Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Value has no effect on the direction of Royce Special i.e., Royce Special and Small Cap go up and down completely randomly.

Pair Corralation between Royce Special and Small Cap

Assuming the 90 days horizon Royce Special Equity is expected to generate 0.76 times more return on investment than Small Cap. However, Royce Special Equity is 1.32 times less risky than Small Cap. It trades about 0.01 of its potential returns per unit of risk. Small Cap Value Series is currently generating about 0.0 per unit of risk. If you would invest  1,560  in Royce Special Equity on September 6, 2025 and sell it today you would earn a total of  1.00  from holding Royce Special Equity or generate 0.06% return on investment over 90 days.

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

Royce Special Equity  vs.  Small Cap Value Series

Royce Special Equity

Risk-Adjusted Performance

Weakest

Over the last 90 days Royce Special Equity has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Royce Special is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Small Cap Value

Risk-Adjusted Performance

Weakest

Over the last 90 days Small Cap Value Series has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Small Cap 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 Special and Small Cap

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

The idea behind Royce Special Equity and Small Cap Value Series 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.