Correlation Between Transamerica International and Aqr Small
Can any of the company-specific risk be diversified away by investing in both Transamerica International and Aqr Small 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 Aqr Small 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 Aqr Small Cap, you can compare the effects of market volatilities on Transamerica International and Aqr Small 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 Aqr Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Transamerica International and Aqr Small.
Diversification Opportunities for Transamerica International and Aqr Small
0.51 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Transamerica and Aqr is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Transamerica International Equ and Aqr Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aqr Small Cap 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 Aqr Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aqr Small Cap has no effect on the direction of Transamerica International i.e., Transamerica International and Aqr Small go up and down completely randomly.
Pair Corralation between Transamerica International and Aqr Small
Assuming the 90 days horizon Transamerica International Equity is expected to generate 0.44 times more return on investment than Aqr Small. However, Transamerica International Equity is 2.28 times less risky than Aqr Small. It trades about 0.01 of its potential returns per unit of risk. Aqr Small Cap is currently generating about -0.13 per unit of risk. If you would invest 2,057 in Transamerica International Equity on October 20, 2024 and sell it today you would earn a total of 6.00 from holding Transamerica International Equity or generate 0.29% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Transamerica International Equ vs. Aqr Small Cap
Performance |
| Timeline |
| Transamerica International |
| Aqr Small Cap |
Transamerica International and Aqr Small Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Transamerica International and Aqr Small
The main advantage of trading using opposite Transamerica International and Aqr Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Transamerica International position performs unexpectedly, Aqr Small 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 Aqr Small will offset losses from the drop in Aqr Small's long position.The idea behind Transamerica International Equity and Aqr Small 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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