Correlation Between Health Care and Transamerica

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

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

Diversification Opportunities for Health Care and Transamerica

-0.57

Correlation Coefficient

Health Care  Transamerica

Excellent diversification

The 3 months correlation between Health and Transamerica is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Health Care Ultrasector and Transamerica Growth T in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transamerica Growth and Health Care 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 Health Care Ultrasector are associated (or correlated) with Transamerica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transamerica Growth has no effect on the direction of Health Care i.e., Health Care and Transamerica go up and down completely randomly.

Pair Corralation between Health Care and Transamerica

Assuming the 90 days horizon Health Care Ultrasector is expected to under-perform the Transamerica. But the mutual fund apears to be less risky and, when comparing its historical volatility, Health Care Ultrasector is 1.09 times less risky than Transamerica. The mutual fund trades about -0.01 of its potential returns per unit of risk. The Transamerica Growth T is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  10,020  in Transamerica Growth T on October 9, 2024 and sell it today you would earn a total of  2,531  from holding Transamerica Growth T or generate 25.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.6%
Values	Daily Returns

Health Care Ultrasector  vs.  Transamerica Growth T

Health Care Ultrasector

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Health Care Ultrasector has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's forward indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Transamerica Growth

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Transamerica Growth T are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Transamerica is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Health Care and Transamerica

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

The idea behind Health Care Ultrasector and Transamerica Growth T 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.