Correlation Between Transamerica Financial and Madison Covered
Can any of the company-specific risk be diversified away by investing in both Transamerica Financial and Madison Covered 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 Transamerica Financial and Madison Covered into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Transamerica Financial Life and Madison Ered Call, you can compare the effects of market volatilities on Transamerica Financial and Madison Covered 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 Transamerica Financial with a short position of Madison Covered. Check out your portfolio center. Please also check ongoing floating volatility patterns of Transamerica Financial and Madison Covered.
Diversification Opportunities for Transamerica Financial and Madison Covered
-0.16 | Correlation Coefficient |
Good diversification
The 3 months correlation between Transamerica and Madison is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Transamerica Financial Life and Madison Ered Call in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Madison Ered Call and Transamerica Financial 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 Transamerica Financial Life are associated (or correlated) with Madison Covered. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Madison Ered Call has no effect on the direction of Transamerica Financial i.e., Transamerica Financial and Madison Covered go up and down completely randomly.
Pair Corralation between Transamerica Financial and Madison Covered
Assuming the 90 days horizon Transamerica Financial is expected to generate 22.6 times less return on investment than Madison Covered. In addition to that, Transamerica Financial is 1.85 times more volatile than Madison Ered Call. It trades about 0.0 of its total potential returns per unit of risk. Madison Ered Call is currently generating about 0.02 per unit of volatility. If you would invest 914.00 in Madison Ered Call on December 11, 2024 and sell it today you would earn a total of 25.00 from holding Madison Ered Call or generate 2.74% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Transamerica Financial Life vs. Madison Ered Call
Performance |
| Timeline |
| Transamerica Financial |
| Madison Ered Call |
Transamerica Financial and Madison Covered Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Transamerica Financial and Madison Covered
The main advantage of trading using opposite Transamerica Financial and Madison Covered positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Transamerica Financial position performs unexpectedly, Madison Covered 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 Madison Covered will offset losses from the drop in Madison Covered's long position.The idea behind Transamerica Financial Life and Madison Ered Call 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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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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