Correlation Between Transamerica Large and Transamerica Growth
Can any of the company-specific risk be diversified away by investing in both Transamerica Large and Transamerica Growth 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 Growth into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Transamerica Large Cap and Transamerica Growth T, you can compare the effects of market volatilities on Transamerica Large and Transamerica Growth 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 Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Transamerica Large and Transamerica Growth.
Diversification Opportunities for Transamerica Large and Transamerica Growth
0.94 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Transamerica and Transamerica is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Transamerica Large Cap and Transamerica Growth T in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transamerica Growth 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 Cap are associated (or correlated) with Transamerica Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transamerica Growth has no effect on the direction of Transamerica Large i.e., Transamerica Large and Transamerica Growth go up and down completely randomly.
Pair Corralation between Transamerica Large and Transamerica Growth
Assuming the 90 days horizon Transamerica Large is expected to generate 1.67 times less return on investment than Transamerica Growth. But when comparing it to its historical volatility, Transamerica Large Cap is 1.47 times less risky than Transamerica Growth. It trades about 0.09 of its potential returns per unit of risk. Transamerica Growth T is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 7,412 in Transamerica Growth T on August 28, 2024 and sell it today you would earn a total of 5,205 from holding Transamerica Growth T or generate 70.22% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Transamerica Large Cap vs. Transamerica Growth T
Performance |
| Timeline |
| Transamerica Large Cap |
| Transamerica Growth |
Transamerica Large and Transamerica Growth Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Transamerica Large and Transamerica Growth
The main advantage of trading using opposite Transamerica Large and Transamerica Growth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Transamerica Large position performs unexpectedly, Transamerica Growth 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 Growth will offset losses from the drop in Transamerica Growth's long position.The idea behind Transamerica Large Cap and Transamerica Growth T 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.
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