Correlation Between American Funds and Transamerica Financial
Can any of the company-specific risk be diversified away by investing in both American Funds 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 American Funds and Transamerica Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Funds 2055 and Transamerica Financial Life, you can compare the effects of market volatilities on American Funds 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 American Funds with a short position of Transamerica Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and Transamerica Financial.
Diversification Opportunities for American Funds and Transamerica Financial
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between American and Transamerica is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding American Funds 2055 and Transamerica Financial Life in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transamerica Financial and American Funds 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 American Funds 2055 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 American Funds i.e., American Funds and Transamerica Financial go up and down completely randomly.
Pair Corralation between American Funds and Transamerica Financial
Assuming the 90 days horizon American Funds 2055 is expected to generate 0.89 times more return on investment than Transamerica Financial. However, American Funds 2055 is 1.12 times less risky than Transamerica Financial. It trades about 0.07 of its potential returns per unit of risk. Transamerica Financial Life is currently generating about 0.06 per unit of risk. If you would invest 2,073 in American Funds 2055 on August 30, 2024 and sell it today you would earn a total of 568.00 from holding American Funds 2055 or generate 27.4% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Funds 2055 vs. Transamerica Financial Life
Performance |
| Timeline |
| American Funds 2055 |
| Transamerica Financial |
American Funds and Transamerica Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Funds and Transamerica Financial
The main advantage of trading using opposite American Funds and Transamerica Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Funds 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.| American Funds vs. Ab Municipal Bond | American Funds vs. Ab Bond Inflation | American Funds vs. Ab Municipal Bond | American Funds vs. Ab Bond Inflation |
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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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.
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