Correlation Between Transamerica Asset and Franklin Lifesmart

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

By analyzing existing cross correlation between Transamerica Asset Allocation and Franklin Lifesmart 2050, you can compare the effects of market volatilities on Transamerica Asset and Franklin Lifesmart 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 Asset with a short position of Franklin Lifesmart. Check out your portfolio center. Please also check ongoing floating volatility patterns of Transamerica Asset and Franklin Lifesmart.

Diversification Opportunities for Transamerica Asset and Franklin Lifesmart

0.97

Correlation Coefficient

Transamerica Asset  Franklin Lifesmart

Almost no diversification

The 3 months correlation between Transamerica and FRANKLIN is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Transamerica Asset Allocation and Franklin Lifesmart 2050 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Lifesmart 2050 and Transamerica Asset 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 Asset Allocation are associated (or correlated) with Franklin Lifesmart. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Lifesmart 2050 has no effect on the direction of Transamerica Asset i.e., Transamerica Asset and Franklin Lifesmart go up and down completely randomly.

Pair Corralation between Transamerica Asset and Franklin Lifesmart

Assuming the 90 days horizon Transamerica Asset is expected to generate 1.11 times less return on investment than Franklin Lifesmart. But when comparing it to its historical volatility, Transamerica Asset Allocation is 1.26 times less risky than Franklin Lifesmart. It trades about 0.14 of its potential returns per unit of risk. Franklin Lifesmart 2050 is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  1,529  in Franklin Lifesmart 2050 on September 3, 2024 and sell it today you would earn a total of  80.00  from holding Franklin Lifesmart 2050 or generate 5.23% return on investment over 90 days.

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

Transamerica Asset Allocation  vs.  Franklin Lifesmart 2050

Transamerica Asset

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Transamerica Asset Allocation are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Transamerica Asset is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Franklin Lifesmart 2050

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Lifesmart 2050 are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Franklin Lifesmart 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 Asset and Franklin Lifesmart

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

The idea behind Transamerica Asset Allocation and Franklin Lifesmart 2050 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.