Correlation Between Global Small and Transamerica Financial

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

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

Diversification Opportunities for Global Small and Transamerica Financial

0.23

Correlation Coefficient

Global Small  Transamerica Financial

Modest diversification

The 3 months correlation between Global and Transamerica is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Global Small Cap and Transamerica Financial Life in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transamerica Financial and Global Small 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 Global Small Cap are associated (or correlated) with Transamerica Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transamerica Financial has no effect on the direction of Global Small i.e., Global Small and Transamerica Financial go up and down completely randomly.

Pair Corralation between Global Small and Transamerica Financial

Assuming the 90 days horizon Global Small Cap is expected to under-perform the Transamerica Financial. In addition to that, Global Small is 1.56 times more volatile than Transamerica Financial Life. It trades about -0.09 of its total potential returns per unit of risk. Transamerica Financial Life is currently generating about 0.05 per unit of volatility. If you would invest  1,056  in Transamerica Financial Life on December 30, 2024 and sell it today you would earn a total of  23.00  from holding Transamerica Financial Life or generate 2.18% return on investment over 90 days.

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

Global Small Cap  vs.  Transamerica Financial Life

Global Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Global Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Transamerica Financial

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Transamerica Financial Life are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Transamerica Financial is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Global Small and Transamerica Financial

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

The idea behind Global Small Cap and Transamerica Financial Life 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.