Correlation Between T Rowe and Transamerica Capital

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

Diversification Opportunities for T Rowe and Transamerica Capital

0.94

Correlation Coefficient

T Rowe  Transamerica Capital

Almost no diversification

The 3 months correlation between TRBCX and Transamerica is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding T Rowe Price and Transamerica Capital Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transamerica Capital 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 Transamerica Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transamerica Capital has no effect on the direction of T Rowe i.e., T Rowe and Transamerica Capital go up and down completely randomly.

Pair Corralation between T Rowe and Transamerica Capital

Assuming the 90 days horizon T Rowe Price is expected to generate 0.58 times more return on investment than Transamerica Capital. However, T Rowe Price is 1.73 times less risky than Transamerica Capital. It trades about 0.01 of its potential returns per unit of risk. Transamerica Capital Growth is currently generating about -0.08 per unit of risk. If you would invest  19,137  in T Rowe Price on October 9, 2024 and sell it today you would earn a total of  10.00  from holding T Rowe Price or generate 0.05% 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.  Transamerica Capital Growth

T Rowe Price

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in T Rowe Price are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, T Rowe may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Transamerica Capital

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Transamerica Capital Growth are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Transamerica Capital showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with T Rowe and Transamerica Capital

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

The idea behind T Rowe Price and Transamerica Capital Growth 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.