Correlation Between Transamerica High and Multi-manager High

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

Diversification Opportunities for Transamerica High and Multi-manager High

0.87

Correlation Coefficient

Transamerica High  Multi-manager High

Very poor diversification

The 3 months correlation between Transamerica and Multi-manager is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Transamerica High Yield and Multi Manager High Yield in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Multi Manager 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 Multi-manager High. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Multi Manager High has no effect on the direction of Transamerica High i.e., Transamerica High and Multi-manager High go up and down completely randomly.

Pair Corralation between Transamerica High and Multi-manager High

Assuming the 90 days horizon Transamerica High Yield is expected to under-perform the Multi-manager High. But the mutual fund apears to be less risky and, when comparing its historical volatility, Transamerica High Yield is 1.48 times less risky than Multi-manager High. The mutual fund trades about -0.01 of its potential returns per unit of risk. The Multi Manager High Yield is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  842.00  in Multi Manager High Yield on October 9, 2024 and sell it today you would lose (1.00) from holding Multi Manager 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.  Multi Manager High Yield

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.

Multi Manager High

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Transamerica High Yield and Multi Manager High Yield 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.