Correlation Between T Rowe and Regional Bank

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

Diversification Opportunities for T Rowe and Regional Bank

0.82

Correlation Coefficient

T Rowe  Regional Bank

Very poor diversification

The 3 months correlation between TRSAX and Regional is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding T Rowe Price and Regional Bank Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Regional Bank 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 Regional Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Regional Bank has no effect on the direction of T Rowe i.e., T Rowe and Regional Bank go up and down completely randomly.

Pair Corralation between T Rowe and Regional Bank

Assuming the 90 days horizon T Rowe Price is expected to generate 1.33 times more return on investment than Regional Bank. However, T Rowe is 1.33 times more volatile than Regional Bank Fund. It trades about -0.1 of its potential returns per unit of risk. Regional Bank Fund is currently generating about -0.29 per unit of risk. If you would invest  10,677  in T Rowe Price on September 22, 2024 and sell it today you would lose (422.00) from holding T Rowe Price or give up 3.95% of portfolio value over 90 days.

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

T Rowe Price  vs.  Regional Bank Fund

T Rowe Price

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in T Rowe Price are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, T Rowe is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Regional Bank

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Regional Bank Fund are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Regional Bank may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with T Rowe and Regional Bank

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

The idea behind T Rowe Price and Regional Bank 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.

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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.