Correlation Between Transamerica Short and Palmer Square

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

By analyzing existing cross correlation between Transamerica Short Term Bond and Palmer Square Ultra Short, you can compare the effects of market volatilities on Transamerica Short and Palmer Square 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 Short with a short position of Palmer Square. Check out your portfolio center. Please also check ongoing floating volatility patterns of Transamerica Short and Palmer Square.

Diversification Opportunities for Transamerica Short and Palmer Square

0.8

Correlation Coefficient

Transamerica Short  Palmer Square

Very poor diversification

The 3 months correlation between Transamerica and Palmer is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Transamerica Short Term Bond and Palmer Square Ultra Short in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Palmer Square Ultra and Transamerica Short 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 Short Term Bond are associated (or correlated) with Palmer Square. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Palmer Square Ultra has no effect on the direction of Transamerica Short i.e., Transamerica Short and Palmer Square go up and down completely randomly.

Pair Corralation between Transamerica Short and Palmer Square

Assuming the 90 days horizon Transamerica Short is expected to generate 1.19 times less return on investment than Palmer Square. In addition to that, Transamerica Short is 4.5 times more volatile than Palmer Square Ultra Short. It trades about 0.12 of its total potential returns per unit of risk. Palmer Square Ultra Short is currently generating about 0.67 per unit of volatility. If you would invest  1,970  in Palmer Square Ultra Short on October 23, 2024 and sell it today you would earn a total of  22.00  from holding Palmer Square Ultra Short or generate 1.12% return on investment over 90 days.

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

Transamerica Short Term Bond  vs.  Palmer Square Ultra Short

Transamerica Short Term

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Transamerica Short Term Bond are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Transamerica Short is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Palmer Square Ultra

Risk-Adjusted Performance

52 of 100

Excellent

Compared to the overall equity markets, risk-adjusted returns on investments in Palmer Square Ultra Short are ranked lower than 52 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Palmer Square 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 Short and Palmer Square

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

The idea behind Transamerica Short Term Bond and Palmer Square Ultra Short 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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.