Correlation Between Litman Gregory and Transamerica High

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

By analyzing existing cross correlation between Litman Gregory Masters and Transamerica High Yield, you can compare the effects of market volatilities on Litman Gregory and Transamerica High 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 Litman Gregory with a short position of Transamerica High. Check out your portfolio center. Please also check ongoing floating volatility patterns of Litman Gregory and Transamerica High.

Diversification Opportunities for Litman Gregory and Transamerica High

0.84

Correlation Coefficient

Litman Gregory  Transamerica High

Very poor diversification

The 3 months correlation between Litman and Transamerica is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Litman Gregory Masters and Transamerica High Yield in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transamerica High Yield and Litman Gregory 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 Litman Gregory Masters are associated (or correlated) with Transamerica High. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transamerica High Yield has no effect on the direction of Litman Gregory i.e., Litman Gregory and Transamerica High go up and down completely randomly.

Pair Corralation between Litman Gregory and Transamerica High

Assuming the 90 days horizon Litman Gregory Masters is expected to generate 0.61 times more return on investment than Transamerica High. However, Litman Gregory Masters is 1.65 times less risky than Transamerica High. It trades about 0.15 of its potential returns per unit of risk. Transamerica High Yield is currently generating about 0.09 per unit of risk. If you would invest  982.00  in Litman Gregory Masters on December 24, 2024 and sell it today you would earn a total of  12.00  from holding Litman Gregory Masters or generate 1.22% return on investment over 90 days.

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

Litman Gregory Masters  vs.  Transamerica High Yield

Litman Gregory Masters

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Litman Gregory Masters are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Litman Gregory is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Transamerica High Yield

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Transamerica High Yield are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Transamerica High is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Litman Gregory and Transamerica High

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

The idea behind Litman Gregory Masters and Transamerica High Yield 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.