Correlation Between Transamerica Large and Transamerica High
Can any of the company-specific risk be diversified away by investing in both Transamerica Large and Transamerica High 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 Large and Transamerica High into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Transamerica Large Growth and Transamerica High Yield, you can compare the effects of market volatilities on Transamerica Large and Transamerica High 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 Large with a short position of Transamerica High. Check out your portfolio center. Please also check ongoing floating volatility patterns of Transamerica Large and Transamerica High.
Diversification Opportunities for Transamerica Large and Transamerica High
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Transamerica and Transamerica is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Transamerica Large Growth and Transamerica High Yield in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transamerica High Yield and Transamerica Large 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 Large Growth are associated (or correlated) with Transamerica High. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transamerica High Yield has no effect on the direction of Transamerica Large i.e., Transamerica Large and Transamerica High go up and down completely randomly.
Pair Corralation between Transamerica Large and Transamerica High
Assuming the 90 days horizon Transamerica Large Growth is expected to generate 9.36 times more return on investment than Transamerica High. However, Transamerica Large is 9.36 times more volatile than Transamerica High Yield. It trades about 0.38 of its potential returns per unit of risk. Transamerica High Yield is currently generating about 0.29 per unit of risk. If you would invest 1,400 in Transamerica Large Growth on August 31, 2024 and sell it today you would earn a total of 175.00 from holding Transamerica Large Growth or generate 12.5% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Transamerica Large Growth vs. Transamerica High Yield
Performance |
| Timeline |
| Transamerica Large Growth |
| Transamerica High Yield |
Transamerica Large and Transamerica High Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Transamerica Large and Transamerica High
The main advantage of trading using opposite Transamerica Large and Transamerica High positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Transamerica Large position performs unexpectedly, Transamerica High 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 High will offset losses from the drop in Transamerica High's long position.The idea behind Transamerica Large Growth and Transamerica High Yield 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
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