Correlation Between T Rowe and The Arbitrage

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

Diversification Opportunities for T Rowe and The Arbitrage

0.56

Correlation Coefficient

T Rowe  The Arbitrage

Very weak diversification

The 3 months correlation between PRFHX and THE is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding T Rowe Price and The Arbitrage Credit in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arbitrage Credit 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 The Arbitrage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arbitrage Credit has no effect on the direction of T Rowe i.e., T Rowe and The Arbitrage go up and down completely randomly.

Pair Corralation between T Rowe and The Arbitrage

Assuming the 90 days horizon T Rowe Price is expected to under-perform the The Arbitrage. In addition to that, T Rowe is 2.47 times more volatile than The Arbitrage Credit. It trades about -0.06 of its total potential returns per unit of risk. The Arbitrage Credit is currently generating about 0.28 per unit of volatility. If you would invest  965.00  in The Arbitrage Credit on December 29, 2024 and sell it today you would earn a total of  17.00  from holding The Arbitrage Credit or generate 1.76% 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.  The Arbitrage Credit

T Rowe Price

Risk-Adjusted Performance

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

Arbitrage Credit

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in The Arbitrage Credit are ranked lower than 22 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, The Arbitrage 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 The Arbitrage

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

The idea behind T Rowe Price and The Arbitrage Credit 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.