Correlation Between Financial Industries and Transamerica Financial
Can any of the company-specific risk be diversified away by investing in both Financial Industries 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 Financial Industries and Transamerica Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Financial Industries Fund and Transamerica Financial Life, you can compare the effects of market volatilities on Financial Industries 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 Financial Industries with a short position of Transamerica Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Financial Industries and Transamerica Financial.
Diversification Opportunities for Financial Industries and Transamerica Financial
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Financial and Transamerica is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Financial Industries Fund and Transamerica Financial Life in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transamerica Financial and Financial Industries 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 Financial Industries Fund 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 Financial Industries i.e., Financial Industries and Transamerica Financial go up and down completely randomly.
Pair Corralation between Financial Industries and Transamerica Financial
Assuming the 90 days horizon Financial Industries Fund is expected to generate 1.35 times more return on investment than Transamerica Financial. However, Financial Industries is 1.35 times more volatile than Transamerica Financial Life. It trades about 0.07 of its potential returns per unit of risk. Transamerica Financial Life is currently generating about 0.05 per unit of risk. If you would invest 1,528 in Financial Industries Fund on September 1, 2024 and sell it today you would earn a total of 600.00 from holding Financial Industries Fund or generate 39.27% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.78% |
| Values | Daily Returns |
Financial Industries Fund vs. Transamerica Financial Life
Performance |
| Timeline |
| Financial Industries |
| Transamerica Financial |
Financial Industries and Transamerica Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Financial Industries and Transamerica Financial
The main advantage of trading using opposite Financial Industries and Transamerica Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Financial Industries 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.The idea behind Financial Industries Fund and Transamerica Financial Life 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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