Correlation Between Transamerica Financial and Westcore Small-cap
Can any of the company-specific risk be diversified away by investing in both Transamerica Financial and Westcore Small-cap 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 Westcore Small-cap 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 Westcore Small Cap Growth, you can compare the effects of market volatilities on Transamerica Financial and Westcore Small-cap 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 Westcore Small-cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Transamerica Financial and Westcore Small-cap.
Diversification Opportunities for Transamerica Financial and Westcore Small-cap
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Transamerica and Westcore is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Transamerica Financial Life and Westcore Small Cap Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westcore Small Cap 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 Westcore Small-cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westcore Small Cap has no effect on the direction of Transamerica Financial i.e., Transamerica Financial and Westcore Small-cap go up and down completely randomly.
Pair Corralation between Transamerica Financial and Westcore Small-cap
Assuming the 90 days horizon Transamerica Financial is expected to generate 1.75 times less return on investment than Westcore Small-cap. But when comparing it to its historical volatility, Transamerica Financial Life is 1.54 times less risky than Westcore Small-cap. It trades about 0.1 of its potential returns per unit of risk. Westcore Small Cap Growth is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 1,733 in Westcore Small Cap Growth on August 26, 2024 and sell it today you would earn a total of 623.00 from holding Westcore Small Cap Growth or generate 35.95% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Transamerica Financial Life vs. Westcore Small Cap Growth
Performance |
| Timeline |
| Transamerica Financial |
| Westcore Small Cap |
Transamerica Financial and Westcore Small-cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Transamerica Financial and Westcore Small-cap
The main advantage of trading using opposite Transamerica Financial and Westcore Small-cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Transamerica Financial position performs unexpectedly, Westcore Small-cap 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 Westcore Small-cap will offset losses from the drop in Westcore Small-cap's long position.The idea behind Transamerica Financial Life and Westcore Small Cap 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.
| Westcore Small-cap vs. Transamerica Financial Life | Westcore Small-cap vs. Blackrock Financial Institutions | Westcore Small-cap vs. Goldman Sachs Financial | Westcore Small-cap vs. Royce Global Financial |
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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.
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