Correlation Between Transamerica Intermediate and Capital World

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

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

Diversification Opportunities for Transamerica Intermediate and Capital World

0.52

Correlation Coefficient

Transamerica Intermediate  Capital World

Very weak diversification

The 3 months correlation between Transamerica and Capital is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Transamerica Intermediate Muni and Capital World Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital World Growth and Transamerica Intermediate 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 Intermediate Muni are associated (or correlated) with Capital World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital World Growth has no effect on the direction of Transamerica Intermediate i.e., Transamerica Intermediate and Capital World go up and down completely randomly.

Pair Corralation between Transamerica Intermediate and Capital World

Assuming the 90 days horizon Transamerica Intermediate is expected to generate 4.13 times less return on investment than Capital World. But when comparing it to its historical volatility, Transamerica Intermediate Muni is 3.3 times less risky than Capital World. It trades about 0.05 of its potential returns per unit of risk. Capital World Growth is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  5,061  in Capital World Growth on September 28, 2024 and sell it today you would earn a total of  1,411  from holding Capital World Growth or generate 27.88% return on investment over 90 days.

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

Transamerica Intermediate Muni  vs.  Capital World Growth

Transamerica Intermediate

Risk-Adjusted Performance

0 of 100

Very Weak

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

Capital World Growth

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Capital World Growth has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Transamerica Intermediate and Capital World

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

The idea behind Transamerica Intermediate Muni and Capital World 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.