Correlation Between Transamerica Financial and Northern Bond

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

Diversification Opportunities for Transamerica Financial and Northern Bond

0.5

Correlation Coefficient

Transamerica Financial  Northern Bond

Very weak diversification

The 3 months correlation between Transamerica and Northern is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Transamerica Financial Life and Northern Bond Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Bond Index 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 Northern Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Bond Index has no effect on the direction of Transamerica Financial i.e., Transamerica Financial and Northern Bond go up and down completely randomly.

Pair Corralation between Transamerica Financial and Northern Bond

Assuming the 90 days horizon Transamerica Financial Life is expected to under-perform the Northern Bond. In addition to that, Transamerica Financial is 2.58 times more volatile than Northern Bond Index. It trades about -0.01 of its total potential returns per unit of risk. Northern Bond Index is currently generating about 0.06 per unit of volatility. If you would invest  884.00  in Northern Bond Index on December 5, 2024 and sell it today you would earn a total of  43.00  from holding Northern Bond Index or generate 4.86% 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.  Northern Bond Index

Transamerica Financial

Risk-Adjusted Performance

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.

Northern Bond Index

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Bond Index are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Northern Bond 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 Northern Bond

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

The idea behind Transamerica Financial Life and Northern Bond Index 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.