Correlation Between T Rowe and American Beacon

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

Diversification Opportunities for T Rowe and American Beacon

0.4

Correlation Coefficient

T Rowe  American Beacon

Very weak diversification

The 3 months correlation between PRINX and American is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding T Rowe Price and American Beacon Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Beacon Small 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 American Beacon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Beacon Small has no effect on the direction of T Rowe i.e., T Rowe and American Beacon go up and down completely randomly.

Pair Corralation between T Rowe and American Beacon

Assuming the 90 days horizon T Rowe is expected to generate 2.27 times less return on investment than American Beacon. But when comparing it to its historical volatility, T Rowe Price is 5.2 times less risky than American Beacon. It trades about 0.09 of its potential returns per unit of risk. American Beacon Small is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,737  in American Beacon Small on September 12, 2024 and sell it today you would earn a total of  407.00  from holding American Beacon Small or generate 23.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.6%
Values	Daily Returns

T Rowe Price  vs.  American Beacon Small

T Rowe Price

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in T Rowe Price are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, T Rowe is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

American Beacon Small

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Beacon Small has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, American Beacon 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 American Beacon

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

The idea behind T Rowe Price and American Beacon Small 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.