Correlation Between American Funds and Transamerica International
Can any of the company-specific risk be diversified away by investing in both American Funds and Transamerica International 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 American Funds and Transamerica International into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Funds Inflation and Transamerica International Stock, you can compare the effects of market volatilities on American Funds and Transamerica International 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 American Funds with a short position of Transamerica International. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and Transamerica International.
Diversification Opportunities for American Funds and Transamerica International
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between American and Transamerica is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding American Funds Inflation and Transamerica International Sto in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transamerica International and American Funds 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 American Funds Inflation are associated (or correlated) with Transamerica International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transamerica International has no effect on the direction of American Funds i.e., American Funds and Transamerica International go up and down completely randomly.
Pair Corralation between American Funds and Transamerica International
Assuming the 90 days horizon American Funds Inflation is expected to generate 0.33 times more return on investment than Transamerica International. However, American Funds Inflation is 3.01 times less risky than Transamerica International. It trades about -0.02 of its potential returns per unit of risk. Transamerica International Stock is currently generating about -0.09 per unit of risk. If you would invest 941.00 in American Funds Inflation on August 31, 2024 and sell it today you would lose (1.00) from holding American Funds Inflation or give up 0.11% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Funds Inflation vs. Transamerica International Sto
Performance |
| Timeline |
| American Funds Inflation |
| Transamerica International |
American Funds and Transamerica International Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Funds and Transamerica International
The main advantage of trading using opposite American Funds and Transamerica International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Funds position performs unexpectedly, Transamerica International 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 International will offset losses from the drop in Transamerica International's long position.The idea behind American Funds Inflation and Transamerica International Stock 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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