Correlation Between T Rowe and Vanguard Extended

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

Diversification Opportunities for T Rowe and Vanguard Extended

0.6

Correlation Coefficient

T Rowe  Vanguard Extended

Poor diversification

The 3 months correlation between TRSSX and Vanguard is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding T Rowe Price and Vanguard Extended Market in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Extended Market 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 Vanguard Extended. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Extended Market has no effect on the direction of T Rowe i.e., T Rowe and Vanguard Extended go up and down completely randomly.

Pair Corralation between T Rowe and Vanguard Extended

Assuming the 90 days horizon T Rowe Price is expected to under-perform the Vanguard Extended. In addition to that, T Rowe is 3.5 times more volatile than Vanguard Extended Market. It trades about -0.24 of its total potential returns per unit of risk. Vanguard Extended Market is currently generating about -0.21 per unit of volatility. If you would invest  38,314  in Vanguard Extended Market on September 27, 2024 and sell it today you would lose (2,039) from holding Vanguard Extended Market or give up 5.32% 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.  Vanguard Extended Market

T Rowe Price

Risk-Adjusted Performance

0 of 100

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 January 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Vanguard Extended Market

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Extended Market are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard Extended may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with T Rowe and Vanguard Extended

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

The idea behind T Rowe Price and Vanguard Extended Market 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.