Correlation Between Capital World and T Rowe

Can any of the company-specific risk be diversified away by investing in both Capital World and T Rowe 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 Capital World and T Rowe into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Capital World Growth and T Rowe Price, you can compare the effects of market volatilities on Capital World and T Rowe 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 Capital World with a short position of T Rowe. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital World and T Rowe.

Diversification Opportunities for Capital World and T Rowe

0.26

Correlation Coefficient

Capital World  T Rowe

Modest diversification

The 3 months correlation between Capital and PRUFX is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Capital World Growth and T Rowe Price in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on T Rowe Price and Capital World 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 Capital World Growth are associated (or correlated) with T Rowe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of T Rowe Price has no effect on the direction of Capital World i.e., Capital World and T Rowe go up and down completely randomly.

Pair Corralation between Capital World and T Rowe

Assuming the 90 days horizon Capital World Growth is expected to under-perform the T Rowe. But the mutual fund apears to be less risky and, when comparing its historical volatility, Capital World Growth is 1.09 times less risky than T Rowe. The mutual fund trades about -0.19 of its potential returns per unit of risk. The T Rowe Price is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  11,302  in T Rowe Price on September 29, 2024 and sell it today you would lose (355.00) from holding T Rowe Price or give up 3.14% of portfolio value over 90 days.

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

Capital World Growth  vs.  T Rowe Price

Capital World Growth

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Capital World Growth 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.

T Rowe Price

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in T Rowe Price are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, T Rowe is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Capital World and T Rowe

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

The idea behind Capital World Growth and T Rowe Price 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.