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 Ark, 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

-0.21

Correlation Coefficient

T Rowe  American Beacon

Very good diversification

The 3 months correlation between RPMGX and American is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding T Rowe Price and American Beacon Ark in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Beacon Ark 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 Ark 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 Price is expected to under-perform the American Beacon. But the mutual fund apears to be less risky and, when comparing its historical volatility, T Rowe Price is 1.98 times less risky than American Beacon. The mutual fund trades about -0.01 of its potential returns per unit of risk. The American Beacon Ark is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,224  in American Beacon Ark on October 20, 2024 and sell it today you would earn a total of  301.00  from holding American Beacon Ark or generate 24.59% 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.  American Beacon Ark

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 latest weak performance, the Fund's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

American Beacon Ark

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Beacon Ark are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, American Beacon showed solid returns over the last few months and may actually be approaching a breakup point.

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 Ark 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.