Correlation Between Transamerica Small/mid and Americafirst Large
Can any of the company-specific risk be diversified away by investing in both Transamerica Small/mid and Americafirst Large 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 Small/mid and Americafirst Large into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Transamerica Smallmid Cap and Americafirst Large Cap, you can compare the effects of market volatilities on Transamerica Small/mid and Americafirst Large 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 Small/mid with a short position of Americafirst Large. Check out your portfolio center. Please also check ongoing floating volatility patterns of Transamerica Small/mid and Americafirst Large.
Diversification Opportunities for Transamerica Small/mid and Americafirst Large
0.93 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Transamerica and Americafirst is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Transamerica Smallmid Cap and Americafirst Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Americafirst Large Cap and Transamerica Small/mid 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 Smallmid Cap are associated (or correlated) with Americafirst Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Americafirst Large Cap has no effect on the direction of Transamerica Small/mid i.e., Transamerica Small/mid and Americafirst Large go up and down completely randomly.
Pair Corralation between Transamerica Small/mid and Americafirst Large
Assuming the 90 days horizon Transamerica Small/mid is expected to generate 1.33 times less return on investment than Americafirst Large. In addition to that, Transamerica Small/mid is 1.0 times more volatile than Americafirst Large Cap. It trades about 0.3 of its total potential returns per unit of risk. Americafirst Large Cap is currently generating about 0.4 per unit of volatility. If you would invest 1,395 in Americafirst Large Cap on September 2, 2024 and sell it today you would earn a total of 131.00 from holding Americafirst Large Cap or generate 9.39% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Transamerica Smallmid Cap vs. Americafirst Large Cap
Performance |
| Timeline |
| Transamerica Smallmid Cap |
| Americafirst Large Cap |
Transamerica Small/mid and Americafirst Large Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Transamerica Small/mid and Americafirst Large
The main advantage of trading using opposite Transamerica Small/mid and Americafirst Large positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Transamerica Small/mid position performs unexpectedly, Americafirst Large 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 Americafirst Large will offset losses from the drop in Americafirst Large's long position.The idea behind Transamerica Smallmid Cap and Americafirst Large 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.
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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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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