Correlation Between Transamerica High and Longleaf Partners

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

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

Diversification Opportunities for Transamerica High and Longleaf Partners

0.89

Correlation Coefficient

Transamerica High  Longleaf Partners

Very poor diversification

The 3 months correlation between Transamerica and Longleaf is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Transamerica High Yield and Longleaf Partners Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Longleaf Partners Small and Transamerica High 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 Transamerica High Yield are associated (or correlated) with Longleaf Partners. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Longleaf Partners Small has no effect on the direction of Transamerica High i.e., Transamerica High and Longleaf Partners go up and down completely randomly.

Pair Corralation between Transamerica High and Longleaf Partners

Assuming the 90 days horizon Transamerica High Yield is expected to generate 0.18 times more return on investment than Longleaf Partners. However, Transamerica High Yield is 5.46 times less risky than Longleaf Partners. It trades about -0.01 of its potential returns per unit of risk. Longleaf Partners Small Cap is currently generating about -0.04 per unit of risk. If you would invest  821.00  in Transamerica High Yield on October 11, 2024 and sell it today you would lose (1.00) from holding Transamerica High Yield or give up 0.12% of portfolio value over 90 days.

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

Transamerica High Yield  vs.  Longleaf Partners Small Cap

Transamerica High Yield

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Transamerica High Yield has generated negative risk-adjusted returns adding no value to fund investors. 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.

Longleaf Partners Small

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Transamerica High and Longleaf Partners

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

The idea behind Transamerica High Yield and Longleaf Partners Small Cap 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.