Correlation Between T Rowe and Smallcap Fund

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

Diversification Opportunities for T Rowe and Smallcap Fund

0.63

Correlation Coefficient

T Rowe  Smallcap Fund

Poor diversification

The 3 months correlation between TRZIX and Smallcap is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding T Rowe Price and Smallcap Fund Fka in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smallcap Fund Fka 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 Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smallcap Fund Fka has no effect on the direction of T Rowe i.e., T Rowe and Smallcap Fund go up and down completely randomly.

Pair Corralation between T Rowe and Smallcap Fund

Assuming the 90 days horizon T Rowe Price is expected to generate 1.18 times more return on investment than Smallcap Fund. However, T Rowe is 1.18 times more volatile than Smallcap Fund Fka. It trades about 0.16 of its potential returns per unit of risk. Smallcap Fund Fka is currently generating about 0.16 per unit of risk. If you would invest  1,424  in T Rowe Price on May 2, 2025 and sell it today you would earn a total of  154.00  from holding T Rowe Price or generate 10.81% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.39%
Values	Daily Returns

T Rowe Price  vs.  Smallcap Fund Fka

T Rowe Price

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in T Rowe Price are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, T Rowe may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Smallcap Fund Fka

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Smallcap Fund Fka are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak primary indicators, Smallcap Fund may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with T Rowe and Smallcap Fund

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

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