Correlation Between T Rowe and Intermediate-term

Can any of the company-specific risk be diversified away by investing in both T Rowe and Intermediate-term 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 Intermediate-term 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 Intermediate Term Bond Fund, you can compare the effects of market volatilities on T Rowe and Intermediate-term 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 Intermediate-term. Check out your portfolio center. Please also check ongoing floating volatility patterns of T Rowe and Intermediate-term.

Diversification Opportunities for T Rowe and Intermediate-term

0.85

Correlation Coefficient

T Rowe  Intermediate-term

Very poor diversification

The 3 months correlation between PATFX and Intermediate-term is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding T Rowe Price and Intermediate Term Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Intermediate Term Bond 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 Intermediate-term. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Intermediate Term Bond has no effect on the direction of T Rowe i.e., T Rowe and Intermediate-term go up and down completely randomly.

Pair Corralation between T Rowe and Intermediate-term

Assuming the 90 days horizon T Rowe Price is expected to generate 0.8 times more return on investment than Intermediate-term. However, T Rowe Price is 1.25 times less risky than Intermediate-term. It trades about 0.1 of its potential returns per unit of risk. Intermediate Term Bond Fund is currently generating about 0.06 per unit of risk. If you would invest  1,018  in T Rowe Price on October 4, 2024 and sell it today you would earn a total of  101.00  from holding T Rowe Price or generate 9.92% return on investment over 90 days.

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

T Rowe Price  vs.  Intermediate Term Bond Fund

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 technical and fundamental indicators, T Rowe is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Intermediate Term Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Intermediate Term Bond Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental drivers, Intermediate-term 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 Intermediate-term

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

The idea behind T Rowe Price and Intermediate Term 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.

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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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.