Correlation Between Transamerica High and Nuveen California

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

Diversification Opportunities for Transamerica High and Nuveen California

0.77

Correlation Coefficient

Transamerica High  Nuveen California

Poor diversification

The 3 months correlation between Transamerica and Nuveen is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Transamerica High Yield and Nuveen California High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nuveen California High 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 Nuveen California. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nuveen California High has no effect on the direction of Transamerica High i.e., Transamerica High and Nuveen California go up and down completely randomly.

Pair Corralation between Transamerica High and Nuveen California

Assuming the 90 days horizon Transamerica High Yield is expected to generate 0.48 times more return on investment than Nuveen California. However, Transamerica High Yield is 2.07 times less risky than Nuveen California. It trades about -0.34 of its potential returns per unit of risk. Nuveen California High is currently generating about -0.35 per unit of risk. If you would invest  830.00  in Transamerica High Yield on October 8, 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	Significant
Accuracy	100.0%
Values	Daily Returns

Transamerica High Yield  vs.  Nuveen California High

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.

Nuveen California High

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nuveen California High has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Nuveen California 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 Nuveen California

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

The idea behind Transamerica High Yield and Nuveen California High 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.