Correlation Between Transamerica International and American Funds
Can any of the company-specific risk be diversified away by investing in both Transamerica International and American Funds 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 American Funds 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 American Funds Retirement, you can compare the effects of market volatilities on Transamerica International and American Funds 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 American Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Transamerica International and American Funds.
Diversification Opportunities for Transamerica International and American Funds
0.41 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Transamerica and American is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Transamerica International Equ and American Funds Retirement in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds Retirement 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 American Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Funds Retirement has no effect on the direction of Transamerica International i.e., Transamerica International and American Funds go up and down completely randomly.
Pair Corralation between Transamerica International and American Funds
Assuming the 90 days horizon Transamerica International Equity is expected to under-perform the American Funds. In addition to that, Transamerica International is 2.21 times more volatile than American Funds Retirement. It trades about -0.19 of its total potential returns per unit of risk. American Funds Retirement is currently generating about 0.06 per unit of volatility. If you would invest 1,273 in American Funds Retirement on August 29, 2024 and sell it today you would earn a total of 6.00 from holding American Funds Retirement or generate 0.47% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 95.65% |
| Values | Daily Returns |
Transamerica International Equ vs. American Funds Retirement
Performance |
| Timeline |
| Transamerica International |
| American Funds Retirement |
Transamerica International and American Funds Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Transamerica International and American Funds
The main advantage of trading using opposite Transamerica International and American Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Transamerica International position performs unexpectedly, American Funds 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 American Funds will offset losses from the drop in American Funds' long position.The idea behind Transamerica International Equity and American Funds Retirement 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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