Correlation Between T Rowe and Westwood Smidcap

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

Diversification Opportunities for T Rowe and Westwood Smidcap

0.68

Correlation Coefficient

T Rowe  Westwood Smidcap

Poor diversification

The 3 months correlation between RRTLX and Westwood is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding T Rowe Price and Westwood Smidcap Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westwood Smidcap 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 Westwood Smidcap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westwood Smidcap has no effect on the direction of T Rowe i.e., T Rowe and Westwood Smidcap go up and down completely randomly.

Pair Corralation between T Rowe and Westwood Smidcap

Assuming the 90 days horizon T Rowe is expected to generate 7.36 times less return on investment than Westwood Smidcap. But when comparing it to its historical volatility, T Rowe Price is 3.85 times less risky than Westwood Smidcap. It trades about 0.08 of its potential returns per unit of risk. Westwood Smidcap Fund is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  1,624  in Westwood Smidcap Fund on September 4, 2024 and sell it today you would earn a total of  118.00  from holding Westwood Smidcap Fund or generate 7.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	97.62%
Values	Daily Returns

T Rowe Price  vs.  Westwood Smidcap Fund

T Rowe Price

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in T Rowe Price are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong essential indicators, T Rowe is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Westwood Smidcap

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Westwood Smidcap Fund are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak primary indicators, Westwood Smidcap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with T Rowe and Westwood Smidcap

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

The idea behind T Rowe Price and Westwood Smidcap 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.

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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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.