Correlation Between T Rowe and Municipal Total

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

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

Diversification Opportunities for T Rowe and Municipal Total

0.57

Correlation Coefficient

T Rowe  Municipal Total

Very weak diversification

The 3 months correlation between PASTX and Municipal is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding T Rowe Price and Municipal Total Return in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Municipal Total Return and T Rowe 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 T Rowe Price are associated (or correlated) with Municipal Total. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Municipal Total Return has no effect on the direction of T Rowe i.e., T Rowe and Municipal Total go up and down completely randomly.

Pair Corralation between T Rowe and Municipal Total

Assuming the 90 days horizon T Rowe Price is expected to generate 6.34 times more return on investment than Municipal Total. However, T Rowe is 6.34 times more volatile than Municipal Total Return. It trades about 0.09 of its potential returns per unit of risk. Municipal Total Return is currently generating about 0.05 per unit of risk. If you would invest  2,882  in T Rowe Price on October 11, 2024 and sell it today you would earn a total of  2,253  from holding T Rowe Price or generate 78.17% return on investment over 90 days.

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

T Rowe Price  vs.  Municipal Total Return

T Rowe Price

Risk-Adjusted Performance

0 of 100

Very Weak

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

Municipal Total Return

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with T Rowe and Municipal Total

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

The idea behind T Rowe Price and Municipal Total Return 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.