Correlation Between Transamerica High and Transamerica Small/mid
Can any of the company-specific risk be diversified away by investing in both Transamerica High and Transamerica Small/mid 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 High and Transamerica Small/mid into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Transamerica High Yield and Transamerica Smallmid Cap, you can compare the effects of market volatilities on Transamerica High and Transamerica Small/mid 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 High with a short position of Transamerica Small/mid. Check out your portfolio center. Please also check ongoing floating volatility patterns of Transamerica High and Transamerica Small/mid.
Diversification Opportunities for Transamerica High and Transamerica Small/mid
0.59 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Transamerica and TRANSAMERICA is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Transamerica High Yield and Transamerica Smallmid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transamerica Smallmid Cap and Transamerica High 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 High Yield are associated (or correlated) with Transamerica Small/mid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transamerica Smallmid Cap has no effect on the direction of Transamerica High i.e., Transamerica High and Transamerica Small/mid go up and down completely randomly.
Pair Corralation between Transamerica High and Transamerica Small/mid
Assuming the 90 days horizon Transamerica High is expected to generate 6.55 times less return on investment than Transamerica Small/mid. But when comparing it to its historical volatility, Transamerica High Yield is 6.83 times less risky than Transamerica Small/mid. It trades about 0.25 of its potential returns per unit of risk. Transamerica Smallmid Cap is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest 2,977 in Transamerica Smallmid Cap on August 28, 2024 and sell it today you would earn a total of 170.00 from holding Transamerica Smallmid Cap or generate 5.71% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Transamerica High Yield vs. Transamerica Smallmid Cap
Performance |
| Timeline |
| Transamerica High Yield |
| Transamerica Smallmid Cap |
Transamerica High and Transamerica Small/mid Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Transamerica High and Transamerica Small/mid
The main advantage of trading using opposite Transamerica High and Transamerica Small/mid positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Transamerica High position performs unexpectedly, Transamerica Small/mid 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 Small/mid will offset losses from the drop in Transamerica Small/mid's long position.The idea behind Transamerica High Yield and Transamerica Smallmid Cap 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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