Correlation Between Limited Term and Transamerica International

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

By analyzing existing cross correlation between Limited Term Tax and Transamerica International Growth, you can compare the effects of market volatilities on Limited Term and Transamerica 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 Limited Term with a short position of Transamerica International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Limited Term and Transamerica International.

Diversification Opportunities for Limited Term and Transamerica International

0.31

Correlation Coefficient

Limited Term  Transamerica International

Weak diversification

The 3 months correlation between Limited and Transamerica is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Limited Term Tax and Transamerica International Gro in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transamerica International and Limited Term 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 Limited Term Tax are associated (or correlated) with Transamerica International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transamerica International has no effect on the direction of Limited Term i.e., Limited Term and Transamerica International go up and down completely randomly.

Pair Corralation between Limited Term and Transamerica International

Assuming the 90 days horizon Limited Term is expected to generate 2.75 times less return on investment than Transamerica International. But when comparing it to its historical volatility, Limited Term Tax is 6.66 times less risky than Transamerica International. It trades about 0.21 of its potential returns per unit of risk. Transamerica International Growth is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  646.00  in Transamerica International Growth on December 2, 2024 and sell it today you would earn a total of  19.00  from holding Transamerica International Growth or generate 2.94% return on investment over 90 days.

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

Limited Term Tax  vs.  Transamerica International Gro

Limited Term Tax

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Limited Term Tax are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Limited Term is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Transamerica International

Risk-Adjusted Performance

Very Weak

Over the last 90 days Transamerica International Growth has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's technical indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Limited Term and Transamerica International

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

The idea behind Limited Term Tax and Transamerica International Growth 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.

Check out your portfolio center.

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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.