Correlation Between Transamerica Financial and Gmo High

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

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

Diversification Opportunities for Transamerica Financial and Gmo High

0.89

Correlation Coefficient

Transamerica Financial  Gmo High

Very poor diversification

The 3 months correlation between Transamerica and Gmo is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Transamerica Financial Life and Gmo High Yield in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gmo High Yield and Transamerica Financial 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 Transamerica Financial Life are associated (or correlated) with Gmo High. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gmo High Yield has no effect on the direction of Transamerica Financial i.e., Transamerica Financial and Gmo High go up and down completely randomly.

Pair Corralation between Transamerica Financial and Gmo High

Assuming the 90 days horizon Transamerica Financial Life is expected to under-perform the Gmo High. In addition to that, Transamerica Financial is 1.25 times more volatile than Gmo High Yield. It trades about -0.32 of its total potential returns per unit of risk. Gmo High Yield is currently generating about -0.23 per unit of volatility. If you would invest  1,812  in Gmo High Yield on October 6, 2024 and sell it today you would lose (145.00) from holding Gmo High Yield or give up 8.0% of portfolio value over 90 days.

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

Transamerica Financial Life  vs.  Gmo High Yield

Transamerica Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Transamerica Financial Life 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.

Gmo High Yield

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gmo High Yield 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.

Pair Trading with Transamerica Financial and Gmo High

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

The idea behind Transamerica Financial Life and Gmo 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.