Correlation Between Small-cap Value and T Rowe

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

By analyzing existing cross correlation between Small Cap Value Fund and T Rowe Price, you can compare the effects of market volatilities on Small-cap Value and T Rowe 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 Small-cap Value with a short position of T Rowe. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small-cap Value and T Rowe.

Diversification Opportunities for Small-cap Value and T Rowe

0.81

Correlation Coefficient

Small-cap Value  T Rowe

Very poor diversification

The 3 months correlation between Small-cap and PASUX is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Value Fund and T Rowe Price in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on T Rowe Price and Small-cap 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 Small Cap Value Fund are associated (or correlated) with T Rowe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of T Rowe Price has no effect on the direction of Small-cap Value i.e., Small-cap Value and T Rowe go up and down completely randomly.

Pair Corralation between Small-cap Value and T Rowe

Assuming the 90 days horizon Small Cap Value Fund is expected to generate 2.4 times more return on investment than T Rowe. However, Small-cap Value is 2.4 times more volatile than T Rowe Price. It trades about 0.15 of its potential returns per unit of risk. T Rowe Price is currently generating about 0.2 per unit of risk. If you would invest  3,862  in Small Cap Value Fund on September 7, 2024 and sell it today you would earn a total of  506.00  from holding Small Cap Value Fund or generate 13.1% return on investment over 90 days.

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

Small Cap Value Fund  vs.  T Rowe Price

Small Cap Value

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Value Fund are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Small-cap Value showed solid returns over the last few months and may actually be approaching a breakup point.

T Rowe Price

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in T Rowe Price are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, T Rowe may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Small-cap Value and T Rowe

The main advantage of trading using opposite Small-cap Value and T Rowe positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small-cap Value position performs unexpectedly, T Rowe 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 T Rowe will offset losses from the drop in T Rowe's long position.

The idea behind Small Cap Value Fund and T Rowe Price 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.