Correlation Between Transamerica International and Transamerica Emerging
Can any of the company-specific risk be diversified away by investing in both Transamerica International and Transamerica Emerging 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 International and Transamerica Emerging into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Transamerica International Equity and Transamerica Emerging Markets, you can compare the effects of market volatilities on Transamerica International and Transamerica Emerging 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 International with a short position of Transamerica Emerging. Check out your portfolio center. Please also check ongoing floating volatility patterns of Transamerica International and Transamerica Emerging.
Diversification Opportunities for Transamerica International and Transamerica Emerging
0.37 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Transamerica and Transamerica is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Transamerica International Equ and Transamerica Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transamerica Emerging and Transamerica International 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 International Equity are associated (or correlated) with Transamerica Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transamerica Emerging has no effect on the direction of Transamerica International i.e., Transamerica International and Transamerica Emerging go up and down completely randomly.
Pair Corralation between Transamerica International and Transamerica Emerging
Assuming the 90 days horizon Transamerica International is expected to generate 1.08 times less return on investment than Transamerica Emerging. But when comparing it to its historical volatility, Transamerica International Equity is 1.12 times less risky than Transamerica Emerging. It trades about 0.06 of its potential returns per unit of risk. Transamerica Emerging Markets is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 719.00 in Transamerica Emerging Markets on August 25, 2024 and sell it today you would earn a total of 83.00 from holding Transamerica Emerging Markets or generate 11.54% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Transamerica International Equ vs. Transamerica Emerging Markets
Performance |
| Timeline |
| Transamerica International |
| Transamerica Emerging |
Transamerica International and Transamerica Emerging Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Transamerica International and Transamerica Emerging
The main advantage of trading using opposite Transamerica International and Transamerica Emerging positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Transamerica International position performs unexpectedly, Transamerica Emerging 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 Emerging will offset losses from the drop in Transamerica Emerging's long position.The idea behind Transamerica International Equity and Transamerica Emerging Markets 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.
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