Correlation Between Royce Smaller and Transamerica Emerging

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

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

Diversification Opportunities for Royce Smaller and Transamerica Emerging

-0.43

Correlation Coefficient

Royce Smaller  Transamerica Emerging

Very good diversification

The 3 months correlation between Royce and Transamerica is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Royce Smaller Companies Growth and Transamerica Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transamerica Emerging and Royce Smaller 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 Royce Smaller Companies Growth are associated (or correlated) with Transamerica Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transamerica Emerging has no effect on the direction of Royce Smaller i.e., Royce Smaller and Transamerica Emerging go up and down completely randomly.

Pair Corralation between Royce Smaller and Transamerica Emerging

Assuming the 90 days horizon Royce Smaller is expected to generate 3.12 times less return on investment than Transamerica Emerging. In addition to that, Royce Smaller is 2.43 times more volatile than Transamerica Emerging Markets. It trades about 0.01 of its total potential returns per unit of risk. Transamerica Emerging Markets is currently generating about 0.11 per unit of volatility. If you would invest  801.00  in Transamerica Emerging Markets on September 19, 2024 and sell it today you would earn a total of  10.00  from holding Transamerica Emerging Markets or generate 1.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

Royce Smaller Companies Growth  vs.  Transamerica Emerging Markets

Royce Smaller Companies

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Royce Smaller Companies Growth are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Royce Smaller may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Transamerica Emerging

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days Transamerica Emerging Markets has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward-looking indicators, Transamerica Emerging is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Royce Smaller and Transamerica Emerging

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

The idea behind Royce Smaller Companies Growth and Transamerica Emerging Markets 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.