Correlation Between T Rowe and Johnson Municipal

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

Diversification Opportunities for T Rowe and Johnson Municipal

0.98

Correlation Coefficient

T Rowe  Johnson Municipal

Almost no diversification

The 3 months correlation between PRINX and Johnson is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding T Rowe Price and Johnson Municipal Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Municipal Income 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 Johnson Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Johnson Municipal Income has no effect on the direction of T Rowe i.e., T Rowe and Johnson Municipal go up and down completely randomly.

Pair Corralation between T Rowe and Johnson Municipal

Assuming the 90 days horizon T Rowe Price is expected to generate 1.21 times more return on investment than Johnson Municipal. However, T Rowe is 1.21 times more volatile than Johnson Municipal Income. It trades about 0.09 of its potential returns per unit of risk. Johnson Municipal Income is currently generating about 0.06 per unit of risk. If you would invest  1,092  in T Rowe Price on September 13, 2024 and sell it today you would earn a total of  53.00  from holding T Rowe Price or generate 4.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	99.6%
Values	Daily Returns

T Rowe Price  vs.  Johnson Municipal Income

T Rowe Price

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in T Rowe Price are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, T Rowe is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Johnson Municipal Income

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Johnson Municipal Income are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Johnson Municipal 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 Johnson Municipal

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

The idea behind T Rowe Price and Johnson Municipal Income 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.