Correlation Between T Rowe and Small-company Stock

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

Diversification Opportunities for T Rowe and Small-company Stock

0.47

Correlation Coefficient

T Rowe  Small-company Stock

Very weak diversification

The 3 months correlation between TRMIX and Small-company is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding T Rowe Price and Small Company Stock Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small-company Stock 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 Small-company Stock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small-company Stock has no effect on the direction of T Rowe i.e., T Rowe and Small-company Stock go up and down completely randomly.

Pair Corralation between T Rowe and Small-company Stock

Assuming the 90 days horizon T Rowe Price is expected to generate 0.84 times more return on investment than Small-company Stock. However, T Rowe Price is 1.19 times less risky than Small-company Stock. It trades about 0.04 of its potential returns per unit of risk. Small Company Stock Fund is currently generating about 0.02 per unit of risk. If you would invest  2,718  in T Rowe Price on December 4, 2024 and sell it today you would earn a total of  463.00  from holding T Rowe Price or generate 17.03% return on investment over 90 days.

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

T Rowe Price  vs.  Small Company Stock Fund

T Rowe Price

Risk-Adjusted Performance

Very Weak

Over the last 90 days T Rowe Price has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's forward indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Small-company Stock

Risk-Adjusted Performance

Very Weak

Over the last 90 days Small Company Stock Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with T Rowe and Small-company Stock

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

The idea behind T Rowe Price and Small Company Stock 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.

Check out your portfolio center.

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 Bonds Directory module to find actively traded corporate debentures issued by US companies.