Correlation Between T Rowe and Financial Industries

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

Diversification Opportunities for T Rowe and Financial Industries

1.0

Correlation Coefficient

T Rowe  Financial Industries

No risk reduction

The 3 months correlation between TFIFX and Financial is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding T Rowe Price and Financial Industries Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial Industries 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 Financial Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financial Industries has no effect on the direction of T Rowe i.e., T Rowe and Financial Industries go up and down completely randomly.

Pair Corralation between T Rowe and Financial Industries

Assuming the 90 days horizon T Rowe is expected to generate 1.15 times less return on investment than Financial Industries. But when comparing it to its historical volatility, T Rowe Price is 1.14 times less risky than Financial Industries. It trades about 0.25 of its potential returns per unit of risk. Financial Industries Fund is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  1,628  in Financial Industries Fund on August 31, 2024 and sell it today you would earn a total of  169.00  from holding Financial Industries Fund or generate 10.38% return on investment over 90 days.

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

T Rowe Price  vs.  Financial Industries Fund

T Rowe Price

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in T Rowe Price are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, T Rowe showed solid returns over the last few months and may actually be approaching a breakup point.

Financial Industries

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Financial Industries Fund are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Financial Industries showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with T Rowe and Financial Industries

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

The idea behind T Rowe Price and Financial Industries 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.