Correlation Between Fulcrum Diversified and Transamerica Small
Can any of the company-specific risk be diversified away by investing in both Fulcrum Diversified and Transamerica Small 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 Fulcrum Diversified and Transamerica Small into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Fulcrum Diversified Absolute and Transamerica Small Cap, you can compare the effects of market volatilities on Fulcrum Diversified and Transamerica Small 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 Fulcrum Diversified with a short position of Transamerica Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fulcrum Diversified and Transamerica Small.
Diversification Opportunities for Fulcrum Diversified and Transamerica Small
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Fulcrum and Transamerica is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Fulcrum Diversified Absolute and Transamerica Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transamerica Small Cap and Fulcrum Diversified 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 Fulcrum Diversified Absolute are associated (or correlated) with Transamerica Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transamerica Small Cap has no effect on the direction of Fulcrum Diversified i.e., Fulcrum Diversified and Transamerica Small go up and down completely randomly.
Pair Corralation between Fulcrum Diversified and Transamerica Small
Assuming the 90 days horizon Fulcrum Diversified is expected to generate 5.08 times less return on investment than Transamerica Small. But when comparing it to its historical volatility, Fulcrum Diversified Absolute is 3.29 times less risky than Transamerica Small. It trades about 0.03 of its potential returns per unit of risk. Transamerica Small Cap is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 518.00 in Transamerica Small Cap on September 12, 2024 and sell it today you would earn a total of 153.00 from holding Transamerica Small Cap or generate 29.54% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.8% |
| Values | Daily Returns |
Fulcrum Diversified Absolute vs. Transamerica Small Cap
Performance |
| Timeline |
| Fulcrum Diversified |
| Transamerica Small Cap |
Fulcrum Diversified and Transamerica Small Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fulcrum Diversified and Transamerica Small
The main advantage of trading using opposite Fulcrum Diversified and Transamerica Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fulcrum Diversified position performs unexpectedly, Transamerica Small 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 Small will offset losses from the drop in Transamerica Small's long position.The idea behind Fulcrum Diversified Absolute and Transamerica Small Cap 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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