Correlation Between American Funds and T Rowe

Can any of the company-specific risk be diversified away by investing in both American Funds and T Rowe 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 American Funds and T Rowe into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between American Funds 2040 and T Rowe Price, you can compare the effects of market volatilities on American Funds and T Rowe 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 American Funds with a short position of T Rowe. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and T Rowe.

Diversification Opportunities for American Funds and T Rowe

0.99

Correlation Coefficient

American Funds  T Rowe

No risk reduction

The 3 months correlation between American and TRRDX is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding American Funds 2040 and T Rowe Price in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on T Rowe Price and American Funds 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 American Funds 2040 are associated (or correlated) with T Rowe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of T Rowe Price has no effect on the direction of American Funds i.e., American Funds and T Rowe go up and down completely randomly.

Pair Corralation between American Funds and T Rowe

Assuming the 90 days horizon American Funds 2040 is expected to under-perform the T Rowe. But the mutual fund apears to be less risky and, when comparing its historical volatility, American Funds 2040 is 1.01 times less risky than T Rowe. The mutual fund trades about -0.16 of its potential returns per unit of risk. The T Rowe Price is currently generating about -0.13 of returns per unit of risk over similar time horizon. If you would invest  2,960  in T Rowe Price on February 3, 2024 and sell it today you would lose (62.00) from holding T Rowe Price or give up 2.09% of portfolio value over 90 days.

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

American Funds 2040  vs.  T Rowe Price

American Funds 2040

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in American Funds 2040 are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, American Funds is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

T Rowe Price

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in T Rowe Price are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, T Rowe is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with American Funds and T Rowe

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

The idea behind American Funds 2040 and T Rowe Price 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.