Correlation Between T Rowe and Power Momentum

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

Diversification Opportunities for T Rowe and Power Momentum

0.6

Correlation Coefficient

T Rowe  Power Momentum

Poor diversification

The 3 months correlation between RCLIX and Power is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding T Rowe Price and Power Momentum Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Power Momentum Index 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 Power Momentum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Power Momentum Index has no effect on the direction of T Rowe i.e., T Rowe and Power Momentum go up and down completely randomly.

Pair Corralation between T Rowe and Power Momentum

Assuming the 90 days horizon T Rowe Price is expected to generate 0.83 times more return on investment than Power Momentum. However, T Rowe Price is 1.21 times less risky than Power Momentum. It trades about 0.08 of its potential returns per unit of risk. Power Momentum Index is currently generating about 0.07 per unit of risk. If you would invest  2,983  in T Rowe Price on October 4, 2024 and sell it today you would earn a total of  1,125  from holding T Rowe Price or generate 37.71% return on investment over 90 days.

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

T Rowe Price  vs.  Power Momentum Index

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

Power Momentum Index

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Power Momentum Index has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Power Momentum 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 Power Momentum

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

The idea behind T Rowe Price and Power Momentum Index 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.