Correlation Between Transamerica Financial and Invesco International

Can any of the company-specific risk be diversified away by investing in both Transamerica Financial and Invesco International 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 Invesco International 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 Invesco International Diversified, you can compare the effects of market volatilities on Transamerica Financial and Invesco International 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 Invesco International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Transamerica Financial and Invesco International.

Diversification Opportunities for Transamerica Financial and Invesco International

0.49

Correlation Coefficient

Transamerica Financial  Invesco International

Very weak diversification

The 3 months correlation between Transamerica and Invesco is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Transamerica Financial Life and Invesco International Diversif in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco International 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 Invesco International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco International has no effect on the direction of Transamerica Financial i.e., Transamerica Financial and Invesco International go up and down completely randomly.

Pair Corralation between Transamerica Financial and Invesco International

Assuming the 90 days horizon Transamerica Financial is expected to generate 2.52 times less return on investment than Invesco International. But when comparing it to its historical volatility, Transamerica Financial Life is 1.12 times less risky than Invesco International. It trades about 0.03 of its potential returns per unit of risk. Invesco International Diversified is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,521  in Invesco International Diversified on December 24, 2024 and sell it today you would earn a total of  51.00  from holding Invesco International Diversified or generate 3.35% return on investment over 90 days.

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

Transamerica Financial Life  vs.  Invesco International Diversif

Transamerica Financial

Risk-Adjusted Performance

Weak

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

Invesco International

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco International Diversified are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Invesco International is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Transamerica Financial and Invesco International

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

The idea behind Transamerica Financial Life and Invesco International Diversified 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.