Correlation Between Transamerica Large and Mesirow Financial
Can any of the company-specific risk be diversified away by investing in both Transamerica Large and Mesirow Financial 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 Mesirow Financial 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 Mesirow Financial Small, you can compare the effects of market volatilities on Transamerica Large and Mesirow Financial 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 Mesirow Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Transamerica Large and Mesirow Financial.
Diversification Opportunities for Transamerica Large and Mesirow Financial
0.91 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Transamerica and MESIROW is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Transamerica Large Cap and Mesirow Financial Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mesirow Financial Small 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 Mesirow Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mesirow Financial Small has no effect on the direction of Transamerica Large i.e., Transamerica Large and Mesirow Financial go up and down completely randomly.
Pair Corralation between Transamerica Large and Mesirow Financial
Assuming the 90 days horizon Transamerica Large is expected to generate 1.26 times less return on investment than Mesirow Financial. But when comparing it to its historical volatility, Transamerica Large Cap is 1.79 times less risky than Mesirow Financial. It trades about 0.14 of its potential returns per unit of risk. Mesirow Financial Small is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 1,259 in Mesirow Financial Small on September 1, 2024 and sell it today you would earn a total of 185.00 from holding Mesirow Financial Small or generate 14.69% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 99.21% |
| Values | Daily Returns |
Transamerica Large Cap vs. Mesirow Financial Small
Performance |
| Timeline |
| Transamerica Large Cap |
| Mesirow Financial Small |
Transamerica Large and Mesirow Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Transamerica Large and Mesirow Financial
The main advantage of trading using opposite Transamerica Large and Mesirow Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Transamerica Large position performs unexpectedly, Mesirow Financial 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 Mesirow Financial will offset losses from the drop in Mesirow Financial's long position.The idea behind Transamerica Large Cap and Mesirow Financial Small 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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