Correlation Between Nasdaq-100(r) and Transamerica Asset

Can any of the company-specific risk be diversified away by investing in both Nasdaq-100(r) and Transamerica Asset 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 Nasdaq-100(r) and Transamerica Asset into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Nasdaq 100 2x Strategy and Transamerica Asset Allocation, you can compare the effects of market volatilities on Nasdaq-100(r) and Transamerica Asset 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 Nasdaq-100(r) with a short position of Transamerica Asset. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nasdaq-100(r) and Transamerica Asset.

Diversification Opportunities for Nasdaq-100(r) and Transamerica Asset

0.87

Correlation Coefficient

Nasdaq-100(r)  Transamerica Asset

Very poor diversification

The 3 months correlation between Nasdaq-100(r) and Transamerica is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq 100 2x Strategy and Transamerica Asset Allocation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transamerica Asset and Nasdaq-100(r) 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 Nasdaq 100 2x Strategy are associated (or correlated) with Transamerica Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transamerica Asset has no effect on the direction of Nasdaq-100(r) i.e., Nasdaq-100(r) and Transamerica Asset go up and down completely randomly.

Pair Corralation between Nasdaq-100(r) and Transamerica Asset

Assuming the 90 days horizon Nasdaq 100 2x Strategy is expected to under-perform the Transamerica Asset. In addition to that, Nasdaq-100(r) is 2.58 times more volatile than Transamerica Asset Allocation. It trades about -0.06 of its total potential returns per unit of risk. Transamerica Asset Allocation is currently generating about -0.09 per unit of volatility. If you would invest  1,550  in Transamerica Asset Allocation on December 2, 2024 and sell it today you would lose (92.00) from holding Transamerica Asset Allocation or give up 5.94% of portfolio value over 90 days.

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

Nasdaq 100 2x Strategy  vs.  Transamerica Asset Allocation

Nasdaq 100 2x

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nasdaq 100 2x Strategy has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Transamerica Asset

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Nasdaq-100(r) and Transamerica Asset

The main advantage of trading using opposite Nasdaq-100(r) and Transamerica Asset positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nasdaq-100(r) position performs unexpectedly, Transamerica Asset 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 Asset will offset losses from the drop in Transamerica Asset's long position.

The idea behind Nasdaq 100 2x Strategy and Transamerica Asset Allocation 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.