Correlation Between Transamerica Intermediate and The Fairholme
Can any of the company-specific risk be diversified away by investing in both Transamerica Intermediate and The Fairholme 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 Intermediate and The Fairholme into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Transamerica Intermediate Muni and The Fairholme Focused, you can compare the effects of market volatilities on Transamerica Intermediate and The Fairholme 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 Intermediate with a short position of The Fairholme. Check out your portfolio center. Please also check ongoing floating volatility patterns of Transamerica Intermediate and The Fairholme.
Diversification Opportunities for Transamerica Intermediate and The Fairholme
0.39 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Transamerica and The is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Transamerica Intermediate Muni and The Fairholme Focused in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fairholme Focused and Transamerica Intermediate 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 Intermediate Muni are associated (or correlated) with The Fairholme. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fairholme Focused has no effect on the direction of Transamerica Intermediate i.e., Transamerica Intermediate and The Fairholme go up and down completely randomly.
Pair Corralation between Transamerica Intermediate and The Fairholme
Assuming the 90 days horizon Transamerica Intermediate Muni is expected to under-perform the The Fairholme. But the mutual fund apears to be less risky and, when comparing its historical volatility, Transamerica Intermediate Muni is 1.82 times less risky than The Fairholme. The mutual fund trades about -0.44 of its potential returns per unit of risk. The The Fairholme Focused is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest 1,400 in The Fairholme Focused on October 10, 2024 and sell it today you would lose (11.00) from holding The Fairholme Focused or give up 0.79% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Transamerica Intermediate Muni vs. The Fairholme Focused
Performance |
| Timeline |
| Transamerica Intermediate |
| Fairholme Focused |
Transamerica Intermediate and The Fairholme Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Transamerica Intermediate and The Fairholme
The main advantage of trading using opposite Transamerica Intermediate and The Fairholme positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Transamerica Intermediate position performs unexpectedly, The Fairholme 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 The Fairholme will offset losses from the drop in The Fairholme's long position.The idea behind Transamerica Intermediate Muni and The Fairholme Focused 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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