Correlation Between Transamerica Financial and Transamerica Capital
Can any of the company-specific risk be diversified away by investing in both Transamerica Financial and Transamerica Capital 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 Transamerica Capital 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 Transamerica Capital Growth, you can compare the effects of market volatilities on Transamerica Financial and Transamerica Capital 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 Transamerica Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Transamerica Financial and Transamerica Capital.
Diversification Opportunities for Transamerica Financial and Transamerica Capital
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Transamerica and Transamerica is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Transamerica Financial Life and Transamerica Capital Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transamerica Capital 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 Transamerica Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transamerica Capital has no effect on the direction of Transamerica Financial i.e., Transamerica Financial and Transamerica Capital go up and down completely randomly.
Pair Corralation between Transamerica Financial and Transamerica Capital
Assuming the 90 days horizon Transamerica Financial is expected to generate 2.65 times less return on investment than Transamerica Capital. But when comparing it to its historical volatility, Transamerica Financial Life is 2.27 times less risky than Transamerica Capital. It trades about 0.08 of its potential returns per unit of risk. Transamerica Capital Growth is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 2,405 in Transamerica Capital Growth on August 31, 2024 and sell it today you would earn a total of 1,778 from holding Transamerica Capital Growth or generate 73.93% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.73% |
| Values | Daily Returns |
Transamerica Financial Life vs. Transamerica Capital Growth
Performance |
| Timeline |
| Transamerica Financial |
| Transamerica Capital |
Transamerica Financial and Transamerica Capital Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Transamerica Financial and Transamerica Capital
The main advantage of trading using opposite Transamerica Financial and Transamerica Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Transamerica Financial position performs unexpectedly, Transamerica Capital 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 Capital will offset losses from the drop in Transamerica Capital's long position.The idea behind Transamerica Financial Life and Transamerica Capital Growth 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.
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