Correlation Between T Rowe and Smallcap

Can any of the company-specific risk be diversified away by investing in both T Rowe and Smallcap 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 Smallcap 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 Smallcap Sp 600, you can compare the effects of market volatilities on T Rowe and Smallcap 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 Smallcap. Check out your portfolio center. Please also check ongoing floating volatility patterns of T Rowe and Smallcap.

Diversification Opportunities for T Rowe and Smallcap

0.94

Correlation Coefficient

T Rowe  Smallcap

Almost no diversification

The 3 months correlation between TRBCX and Smallcap is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding T Rowe Price and Smallcap Sp 600 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smallcap Sp 600 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 Smallcap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smallcap Sp 600 has no effect on the direction of T Rowe i.e., T Rowe and Smallcap go up and down completely randomly.

Pair Corralation between T Rowe and Smallcap

Assuming the 90 days horizon T Rowe Price is expected to generate 0.79 times more return on investment than Smallcap. However, T Rowe Price is 1.27 times less risky than Smallcap. It trades about 0.29 of its potential returns per unit of risk. Smallcap Sp 600 is currently generating about 0.13 per unit of risk. If you would invest  17,736  in T Rowe Price on May 2, 2025 and sell it today you would earn a total of  2,967  from holding T Rowe Price or generate 16.73% return on investment over 90 days.

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

T Rowe Price  vs.  Smallcap Sp 600

T Rowe Price

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in T Rowe Price are ranked lower than 22 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, T Rowe showed solid returns over the last few months and may actually be approaching a breakup point.

Smallcap Sp 600

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Smallcap Sp 600 are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Smallcap may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with T Rowe and Smallcap

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

The idea behind T Rowe Price and Smallcap Sp 600 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..