Correlation Between T Rowe and Municipal Bond

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

Diversification Opportunities for T Rowe and Municipal Bond

-0.25

Correlation Coefficient

T Rowe  Municipal Bond

Very good diversification

The 3 months correlation between TRSAX and Municipal is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding T Rowe Price and Municipal Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Municipal Bond 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 Municipal Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Municipal Bond has no effect on the direction of T Rowe i.e., T Rowe and Municipal Bond go up and down completely randomly.

Pair Corralation between T Rowe and Municipal Bond

Assuming the 90 days horizon T Rowe Price is expected to under-perform the Municipal Bond. In addition to that, T Rowe is 6.19 times more volatile than Municipal Bond Fund. It trades about -0.12 of its total potential returns per unit of risk. Municipal Bond Fund is currently generating about 0.07 per unit of volatility. If you would invest  929.00  in Municipal Bond Fund on December 21, 2024 and sell it today you would earn a total of  9.00  from holding Municipal Bond Fund or generate 0.97% return on investment over 90 days.

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

T Rowe Price  vs.  Municipal Bond 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 latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Municipal Bond

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Municipal Bond Fund are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Municipal Bond 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 Municipal Bond

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

The idea behind T Rowe Price and Municipal Bond 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.