Correlation Between Value Fund and Transamerica High

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

By analyzing existing cross correlation between Value Fund R5 and Transamerica High Yield, you can compare the effects of market volatilities on Value Fund and Transamerica High 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 Value Fund with a short position of Transamerica High. Check out your portfolio center. Please also check ongoing floating volatility patterns of Value Fund and Transamerica High.

Diversification Opportunities for Value Fund and Transamerica High

0.7

Correlation Coefficient

Value Fund  Transamerica High

Poor diversification

The 3 months correlation between Value and Transamerica is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Value Fund R5 and Transamerica High Yield in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transamerica High Yield and Value Fund 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 Value Fund R5 are associated (or correlated) with Transamerica High. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transamerica High Yield has no effect on the direction of Value Fund i.e., Value Fund and Transamerica High go up and down completely randomly.

Pair Corralation between Value Fund and Transamerica High

Assuming the 90 days horizon Value Fund R5 is expected to generate 3.25 times more return on investment than Transamerica High. However, Value Fund is 3.25 times more volatile than Transamerica High Yield. It trades about 0.09 of its potential returns per unit of risk. Transamerica High Yield is currently generating about 0.09 per unit of risk. If you would invest  772.00  in Value Fund R5 on December 23, 2024 and sell it today you would earn a total of  28.00  from holding Value Fund R5 or generate 3.63% return on investment over 90 days.

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

Value Fund R5  vs.  Transamerica High Yield

Value Fund R5

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Value Fund R5 are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Value Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Transamerica High Yield

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Transamerica High Yield are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Transamerica High is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Value Fund and Transamerica High

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

The idea behind Value Fund R5 and Transamerica High Yield 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.