Correlation Between Small Cap and Transamerica Financial
Can any of the company-specific risk be diversified away by investing in both Small Cap and Transamerica Financial 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 Small Cap and Transamerica Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Small Cap Value and Transamerica Financial Life, you can compare the effects of market volatilities on Small Cap and Transamerica Financial 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 Small Cap with a short position of Transamerica Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Transamerica Financial.
Diversification Opportunities for Small Cap and Transamerica Financial
0.97 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Small and Transamerica is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Value and Transamerica Financial Life in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transamerica Financial and Small Cap 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 Small Cap Value are associated (or correlated) with Transamerica Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transamerica Financial has no effect on the direction of Small Cap i.e., Small Cap and Transamerica Financial go up and down completely randomly.
Pair Corralation between Small Cap and Transamerica Financial
Assuming the 90 days horizon Small Cap Value is expected to generate 1.4 times more return on investment than Transamerica Financial. However, Small Cap is 1.4 times more volatile than Transamerica Financial Life. It trades about 0.05 of its potential returns per unit of risk. Transamerica Financial Life is currently generating about 0.02 per unit of risk. If you would invest 1,188 in Small Cap Value on September 13, 2024 and sell it today you would earn a total of 9.00 from holding Small Cap Value or generate 0.76% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Cap Value vs. Transamerica Financial Life
Performance |
| Timeline |
| Small Cap Value |
| Transamerica Financial |
Small Cap and Transamerica Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Transamerica Financial
The main advantage of trading using opposite Small Cap and Transamerica Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Transamerica Financial 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 Transamerica Financial will offset losses from the drop in Transamerica Financial's long position.| Small Cap vs. Blackrock Financial Institutions | Small Cap vs. Icon Financial Fund | Small Cap vs. Fidelity Advisor Financial | Small Cap vs. Vanguard Financials Index |
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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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