Correlation Between Transam Short-term and Small Cap

Can any of the company-specific risk be diversified away by investing in both Transam Short-term and Small Cap 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 Transam Short-term and Small Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Transam Short Term Bond and Small Cap Value Series, you can compare the effects of market volatilities on Transam Short-term and Small Cap 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 Transam Short-term with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Transam Short-term and Small Cap.

Diversification Opportunities for Transam Short-term and Small Cap

0.2

Correlation Coefficient

Transam Short-term  Small Cap

Modest diversification

The 3 months correlation between Transam and Small is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Transam Short Term Bond and Small Cap Value Series in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Value and Transam Short-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 Transam Short Term Bond are associated (or correlated) with Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Value has no effect on the direction of Transam Short-term i.e., Transam Short-term and Small Cap go up and down completely randomly.

Pair Corralation between Transam Short-term and Small Cap

Assuming the 90 days horizon Transam Short-term is expected to generate 2.63 times less return on investment than Small Cap. But when comparing it to its historical volatility, Transam Short Term Bond is 9.41 times less risky than Small Cap. It trades about 0.12 of its potential returns per unit of risk. Small Cap Value Series is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,923  in Small Cap Value Series on October 9, 2024 and sell it today you would earn a total of  180.00  from holding Small Cap Value Series or generate 9.36% return on investment over 90 days.

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

Transam Short Term Bond  vs.  Small Cap Value Series

Transam Short Term

Risk-Adjusted Performance

0 of 100

Very Weak

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

Small Cap Value

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Transam Short-term and Small Cap

The main advantage of trading using opposite Transam Short-term and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Transam Short-term position performs unexpectedly, Small Cap 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 Small Cap will offset losses from the drop in Small Cap's long position.

The idea behind Transam Short Term Bond and Small Cap Value Series 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.