Correlation Between First American and Transamerica Financial
Can any of the company-specific risk be diversified away by investing in both First American 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 First American and Transamerica Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First American Funds and Transamerica Financial Life, you can compare the effects of market volatilities on First American 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 First American with a short position of Transamerica Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of First American and Transamerica Financial.
Diversification Opportunities for First American and Transamerica Financial
0.48 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between First and Transamerica is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding First American Funds and Transamerica Financial Life in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transamerica Financial and First American 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 First American Funds 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 First American i.e., First American and Transamerica Financial go up and down completely randomly.
Pair Corralation between First American and Transamerica Financial
Assuming the 90 days horizon First American is expected to generate 5.6 times less return on investment than Transamerica Financial. But when comparing it to its historical volatility, First American Funds is 5.28 times less risky than Transamerica Financial. It trades about 0.13 of its potential returns per unit of risk. Transamerica Financial Life is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 1,180 in Transamerica Financial Life on September 3, 2024 and sell it today you would earn a total of 67.00 from holding Transamerica Financial Life or generate 5.68% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
First American Funds vs. Transamerica Financial Life
Performance |
| Timeline |
| First American Funds |
| Transamerica Financial |
First American and Transamerica Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First American and Transamerica Financial
The main advantage of trading using opposite First American and Transamerica Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First American 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.| First American vs. Vanguard Total Stock | First American vs. Vanguard 500 Index | First American vs. Vanguard Total Stock | First American vs. Vanguard Total Stock |
| Transamerica Financial vs. Aig Government Money | Transamerica Financial vs. John Hancock Money | Transamerica Financial vs. First American Funds | Transamerica Financial vs. Matson Money Equity |
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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