Correlation Between Transamerica Intermediate and Sit Government

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

Diversification Opportunities for Transamerica Intermediate and Sit Government

0.58

Correlation Coefficient

Transamerica Intermediate  Sit Government

Very weak diversification

The 3 months correlation between Transamerica and Sit is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Transamerica Intermediate Muni and Sit Government Securities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sit Government Securities 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 Sit Government. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sit Government Securities has no effect on the direction of Transamerica Intermediate i.e., Transamerica Intermediate and Sit Government go up and down completely randomly.

Pair Corralation between Transamerica Intermediate and Sit Government

Assuming the 90 days horizon Transamerica Intermediate Muni is expected to generate 0.74 times more return on investment than Sit Government. However, Transamerica Intermediate Muni is 1.35 times less risky than Sit Government. It trades about 0.23 of its potential returns per unit of risk. Sit Government Securities is currently generating about 0.02 per unit of risk. If you would invest  1,077  in Transamerica Intermediate Muni on September 17, 2024 and sell it today you would earn a total of  8.00  from holding Transamerica Intermediate Muni or generate 0.74% 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.  Sit Government Securities

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.

Sit Government Securities

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sit Government Securities has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Sit Government 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 Intermediate and Sit Government

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

The idea behind Transamerica Intermediate Muni and Sit Government Securities 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.