Correlation Between Transamerica High and Western Asset

Can any of the company-specific risk be diversified away by investing in both Transamerica High and Western 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 Transamerica High and Western Asset 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 Western Asset Smash, you can compare the effects of market volatilities on Transamerica High and Western 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 Transamerica High with a short position of Western Asset. Check out your portfolio center. Please also check ongoing floating volatility patterns of Transamerica High and Western Asset.

Diversification Opportunities for Transamerica High and Western Asset

0.25

Correlation Coefficient

Transamerica High  Western Asset

Modest diversification

The 3 months correlation between Transamerica and Western is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Transamerica High Yield and Western Asset Smash in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Asset Smash 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 Western Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Asset Smash has no effect on the direction of Transamerica High i.e., Transamerica High and Western Asset go up and down completely randomly.

Pair Corralation between Transamerica High and Western Asset

Assuming the 90 days horizon Transamerica High Yield is expected to generate 0.37 times more return on investment than Western Asset. However, Transamerica High Yield is 2.71 times less risky than Western Asset. It trades about -0.32 of its potential returns per unit of risk. Western Asset Smash is currently generating about -0.49 per unit of risk. If you would invest  830.00  in Transamerica High Yield on October 10, 2024 and sell it today you would lose (9.00) from holding Transamerica High Yield or give up 1.08% of portfolio value over 90 days.

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

Transamerica High Yield  vs.  Western Asset Smash

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.

Western Asset Smash

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Western Asset Smash has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong primary indicators, Western 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 Transamerica High and Western Asset

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

The idea behind Transamerica High Yield and Western Asset Smash 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.