Correlation Between Transamerica Emerging and Royce Smaller

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

By analyzing existing cross correlation between Transamerica Emerging Markets and Royce Smaller Companies Growth, you can compare the effects of market volatilities on Transamerica Emerging and Royce Smaller 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 Emerging with a short position of Royce Smaller. Check out your portfolio center. Please also check ongoing floating volatility patterns of Transamerica Emerging and Royce Smaller.

Diversification Opportunities for Transamerica Emerging and Royce Smaller

-0.43

Correlation Coefficient

Transamerica Emerging  Royce Smaller

Very good diversification

The 3 months correlation between Transamerica and Royce is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Transamerica Emerging Markets and Royce Smaller Companies Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royce Smaller Companies and Transamerica Emerging 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 Emerging Markets are associated (or correlated) with Royce Smaller. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royce Smaller Companies has no effect on the direction of Transamerica Emerging i.e., Transamerica Emerging and Royce Smaller go up and down completely randomly.

Pair Corralation between Transamerica Emerging and Royce Smaller

Assuming the 90 days horizon Transamerica Emerging Markets is expected to generate 0.41 times more return on investment than Royce Smaller. However, Transamerica Emerging Markets is 2.43 times less risky than Royce Smaller. It trades about 0.11 of its potential returns per unit of risk. Royce Smaller Companies Growth is currently generating about 0.01 per unit of risk. If you would invest  801.00  in Transamerica Emerging Markets on September 19, 2024 and sell it today you would earn a total of  10.00  from holding Transamerica Emerging Markets or generate 1.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

Transamerica Emerging Markets  vs.  Royce Smaller Companies Growth

Transamerica Emerging

Risk-Adjusted Performance

0 of 100

Insignificant

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

Royce Smaller Companies

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Royce Smaller Companies Growth are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Royce Smaller may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Transamerica Emerging and Royce Smaller

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

The idea behind Transamerica Emerging Markets and Royce Smaller Companies Growth 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.