Correlation Between The Arbitrage and Transamerica Capital

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

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

Diversification Opportunities for The Arbitrage and Transamerica Capital

-0.09

Correlation Coefficient

The Arbitrage  Transamerica Capital

Good diversification

The 3 months correlation between The and Transamerica is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding The Arbitrage Fund and Transamerica Capital Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transamerica Capital and The Arbitrage 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 The Arbitrage Fund are associated (or correlated) with Transamerica Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transamerica Capital has no effect on the direction of The Arbitrage i.e., The Arbitrage and Transamerica Capital go up and down completely randomly.

Pair Corralation between The Arbitrage and Transamerica Capital

Assuming the 90 days horizon The Arbitrage Fund is expected to generate 0.08 times more return on investment than Transamerica Capital. However, The Arbitrage Fund is 11.88 times less risky than Transamerica Capital. It trades about 0.27 of its potential returns per unit of risk. Transamerica Capital Growth is currently generating about -0.06 per unit of risk. If you would invest  1,277  in The Arbitrage Fund on December 22, 2024 and sell it today you would earn a total of  38.00  from holding The Arbitrage Fund or generate 2.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

The Arbitrage Fund  vs.  Transamerica Capital Growth

The Arbitrage

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in The Arbitrage Fund are ranked lower than 21 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, The Arbitrage is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Transamerica Capital

Risk-Adjusted Performance

Very Weak

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

Pair Trading with The Arbitrage and Transamerica Capital

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

The idea behind The Arbitrage Fund and Transamerica Capital Growth 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.