Correlation Between Transamerica Large and Vanguard Small-cap

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

By analyzing existing cross correlation between Transamerica Large Core and Vanguard Small Cap Value, you can compare the effects of market volatilities on Transamerica Large and Vanguard Small-cap 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 Large with a short position of Vanguard Small-cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Transamerica Large and Vanguard Small-cap.

Diversification Opportunities for Transamerica Large and Vanguard Small-cap

0.62

Correlation Coefficient

Transamerica Large  Vanguard Small-cap

Poor diversification

The 3 months correlation between Transamerica and Vanguard is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Transamerica Large Core and Vanguard Small Cap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Small Cap and Transamerica Large 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 Large Core are associated (or correlated) with Vanguard Small-cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Small Cap has no effect on the direction of Transamerica Large i.e., Transamerica Large and Vanguard Small-cap go up and down completely randomly.

Pair Corralation between Transamerica Large and Vanguard Small-cap

Assuming the 90 days horizon Transamerica Large Core is expected to under-perform the Vanguard Small-cap. In addition to that, Transamerica Large is 2.26 times more volatile than Vanguard Small Cap Value. It trades about -0.11 of its total potential returns per unit of risk. Vanguard Small Cap Value is currently generating about 0.01 per unit of volatility. If you would invest  4,767  in Vanguard Small Cap Value on October 9, 2024 and sell it today you would earn a total of  17.00  from holding Vanguard Small Cap Value or generate 0.36% return on investment over 90 days.

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

Transamerica Large Core  vs.  Vanguard Small Cap Value

Transamerica Large Core

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Transamerica Large Core has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's fundamental indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Vanguard Small Cap

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Vanguard Small Cap Value has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Vanguard Small-cap 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 Large and Vanguard Small-cap

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

The idea behind Transamerica Large Core and Vanguard Small Cap Value 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.