Correlation Between American Mutual and Transamerica Large

Can any of the company-specific risk be diversified away by investing in both American Mutual and Transamerica Large 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 American Mutual and Transamerica Large into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between American Mutual Fund and Transamerica Large Cap, you can compare the effects of market volatilities on American Mutual and Transamerica Large 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 American Mutual with a short position of Transamerica Large. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Mutual and Transamerica Large.

Diversification Opportunities for American Mutual and Transamerica Large

0.91

Correlation Coefficient

American Mutual  Transamerica Large

Almost no diversification

The 3 months correlation between American and Transamerica is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding American Mutual Fund and Transamerica Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transamerica Large Cap and American Mutual 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 American Mutual Fund are associated (or correlated) with Transamerica Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transamerica Large Cap has no effect on the direction of American Mutual i.e., American Mutual and Transamerica Large go up and down completely randomly.

Pair Corralation between American Mutual and Transamerica Large

Assuming the 90 days horizon American Mutual Fund is expected to under-perform the Transamerica Large. In addition to that, American Mutual is 1.24 times more volatile than Transamerica Large Cap. It trades about -0.1 of its total potential returns per unit of risk. Transamerica Large Cap is currently generating about -0.06 per unit of volatility. If you would invest  1,485  in Transamerica Large Cap on October 7, 2024 and sell it today you would lose (41.00) from holding Transamerica Large Cap or give up 2.76% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

American Mutual Fund  vs.  Transamerica Large Cap

American Mutual

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Mutual Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, American Mutual is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Transamerica Large Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Transamerica Large Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Transamerica Large is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with American Mutual and Transamerica Large

The main advantage of trading using opposite American Mutual and Transamerica Large positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Mutual position performs unexpectedly, Transamerica Large 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 Large will offset losses from the drop in Transamerica Large's long position.

The idea behind American Mutual Fund and Transamerica Large 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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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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.