Correlation Between T Rowe and Eafe Choice

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

Diversification Opportunities for T Rowe and Eafe Choice

0.44

Correlation Coefficient

T Rowe  Eafe Choice

Very weak diversification

The 3 months correlation between TRSAX and Eafe is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding T Rowe Price and The Eafe Choice in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eafe Choice 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 Eafe Choice. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eafe Choice has no effect on the direction of T Rowe i.e., T Rowe and Eafe Choice go up and down completely randomly.

Pair Corralation between T Rowe and Eafe Choice

Assuming the 90 days horizon T Rowe Price is expected to under-perform the Eafe Choice. In addition to that, T Rowe is 1.65 times more volatile than The Eafe Choice. It trades about -0.14 of its total potential returns per unit of risk. The Eafe Choice is currently generating about -0.01 per unit of volatility. If you would invest  1,497  in The Eafe Choice on December 4, 2024 and sell it today you would lose (12.00) from holding The Eafe Choice or give up 0.8% of portfolio value over 90 days.

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

T Rowe Price  vs.  The Eafe Choice

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 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.

Eafe Choice

Risk-Adjusted Performance

Very Weak

Over the last 90 days The Eafe Choice has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Eafe Choice is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with T Rowe and Eafe Choice

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

The idea behind T Rowe Price and The Eafe Choice 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.