Correlation Between T Rowe and Federated Equity

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

Diversification Opportunities for T Rowe and Federated Equity

0.71

Correlation Coefficient

T Rowe  Federated Equity

Poor diversification

The 3 months correlation between TRMIX and Federated is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding T Rowe Price and Federated Equity Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federated Equity Income 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 Federated Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federated Equity Income has no effect on the direction of T Rowe i.e., T Rowe and Federated Equity go up and down completely randomly.

Pair Corralation between T Rowe and Federated Equity

Assuming the 90 days horizon T Rowe Price is expected to generate 0.53 times more return on investment than Federated Equity. However, T Rowe Price is 1.9 times less risky than Federated Equity. It trades about -0.03 of its potential returns per unit of risk. Federated Equity Income is currently generating about -0.1 per unit of risk. If you would invest  3,193  in T Rowe Price on December 21, 2024 and sell it today you would lose (60.00) from holding T Rowe Price or give up 1.88% of portfolio value over 90 days.

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

T Rowe Price  vs.  Federated Equity Income

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 fairly strong forward indicators, T Rowe is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Federated Equity Income

Risk-Adjusted Performance

Very Weak

Over the last 90 days Federated Equity Income 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.

Pair Trading with T Rowe and Federated Equity

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

The idea behind T Rowe Price and Federated Equity Income 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.