Correlation Between T Rowe and PennantPark Investment

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

Diversification Opportunities for T Rowe and PennantPark Investment

0.75

Correlation Coefficient

T Rowe  PennantPark Investment

Poor diversification

The 3 months correlation between TR1 and PennantPark is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding T Rowe Price and PennantPark Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PennantPark Investment 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 PennantPark Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PennantPark Investment has no effect on the direction of T Rowe i.e., T Rowe and PennantPark Investment go up and down completely randomly.

Pair Corralation between T Rowe and PennantPark Investment

Assuming the 90 days horizon T Rowe Price is expected to under-perform the PennantPark Investment. But the stock apears to be less risky and, when comparing its historical volatility, T Rowe Price is 1.17 times less risky than PennantPark Investment. The stock trades about -0.11 of its potential returns per unit of risk. The PennantPark Investment is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  635.00  in PennantPark Investment on September 28, 2024 and sell it today you would earn a total of  25.00  from holding PennantPark Investment or generate 3.94% 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.  PennantPark Investment

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 global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, T Rowe reported solid returns over the last few months and may actually be approaching a breakup point.

PennantPark Investment

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PennantPark Investment are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, PennantPark Investment may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with T Rowe and PennantPark Investment

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

The idea behind T Rowe Price and PennantPark Investment 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.