Correlation Between California High-yield and Transamerica Large

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

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

Diversification Opportunities for California High-yield and Transamerica Large

0.32

Correlation Coefficient

California High-yield  Transamerica Large

Weak diversification

The 3 months correlation between California and Transamerica is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding California High Yield Municipa and Transamerica Large Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transamerica Large Growth and California High-yield 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 California High Yield Municipal 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 Growth has no effect on the direction of California High-yield i.e., California High-yield and Transamerica Large go up and down completely randomly.

Pair Corralation between California High-yield and Transamerica Large

Assuming the 90 days horizon California High Yield Municipal is expected to under-perform the Transamerica Large. But the mutual fund apears to be less risky and, when comparing its historical volatility, California High Yield Municipal is 8.76 times less risky than Transamerica Large. The mutual fund trades about -0.08 of its potential returns per unit of risk. The Transamerica Large Growth is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  1,358  in Transamerica Large Growth on October 5, 2024 and sell it today you would lose (38.00) from holding Transamerica Large Growth or give up 2.8% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

California High Yield Municipa  vs.  Transamerica Large Growth

California High Yield

Risk-Adjusted Performance

0 of 100

Very Weak

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

Transamerica Large Growth

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Transamerica Large Growth has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental 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 California High-yield and Transamerica Large

The main advantage of trading using opposite California High-yield and Transamerica Large positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if California High-yield 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 California High Yield Municipal and Transamerica Large 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 Global Correlations module to find global opportunities by holding instruments from different markets.