Correlation Between Transamerica Financial and Metropolitan West

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

Diversification Opportunities for Transamerica Financial and Metropolitan West

0.55

Correlation Coefficient

Transamerica Financial  Metropolitan West

Very weak diversification

The 3 months correlation between Transamerica and Metropolitan is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Transamerica Financial Life and Metropolitan West High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metropolitan West High 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 Metropolitan West. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Metropolitan West High has no effect on the direction of Transamerica Financial i.e., Transamerica Financial and Metropolitan West go up and down completely randomly.

Pair Corralation between Transamerica Financial and Metropolitan West

Assuming the 90 days horizon Transamerica Financial Life is expected to under-perform the Metropolitan West. In addition to that, Transamerica Financial is 10.74 times more volatile than Metropolitan West High. It trades about -0.22 of its total potential returns per unit of risk. Metropolitan West High is currently generating about -0.11 per unit of volatility. If you would invest  932.00  in Metropolitan West High on October 11, 2024 and sell it today you would lose (6.00) from holding Metropolitan West High or give up 0.64% of portfolio value over 90 days.

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

Transamerica Financial Life  vs.  Metropolitan West High

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.

Metropolitan West High

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Metropolitan West High has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Metropolitan West 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 Metropolitan West

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

The idea behind Transamerica Financial Life and Metropolitan West High 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.