Correlation Between T Rowe and California Bond

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

Diversification Opportunities for T Rowe and California Bond

-0.04

Correlation Coefficient

T Rowe  California Bond

Good diversification

The 3 months correlation between PRJIX and California is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding T Rowe Price and California Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on California 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 California Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of California Bond has no effect on the direction of T Rowe i.e., T Rowe and California Bond go up and down completely randomly.

Pair Corralation between T Rowe and California Bond

Assuming the 90 days horizon T Rowe Price is expected to generate 4.85 times more return on investment than California Bond. However, T Rowe is 4.85 times more volatile than California Bond Fund. It trades about 0.14 of its potential returns per unit of risk. California Bond Fund is currently generating about 0.12 per unit of risk. If you would invest  5,370  in T Rowe Price on September 2, 2024 and sell it today you would earn a total of  1,071  from holding T Rowe Price or generate 19.94% return on investment over 90 days.

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

T Rowe Price  vs.  California Bond Fund

T Rowe Price

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in T Rowe Price are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, T Rowe showed solid returns over the last few months and may actually be approaching a breakup point.

California Bond

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in California Bond Fund are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental drivers, California Bond 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 California Bond

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

The idea behind T Rowe Price and California 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.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.