Correlation Between Transamerica Small and Invesco High

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

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

Diversification Opportunities for Transamerica Small and Invesco High

0.17

Correlation Coefficient

Transamerica Small  Invesco High

Average diversification

The 3 months correlation between Transamerica and Invesco is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Transamerica Small Cap and Invesco High Yield in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco High Yield and Transamerica Small 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 Small Cap are associated (or correlated) with Invesco High. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco High Yield has no effect on the direction of Transamerica Small i.e., Transamerica Small and Invesco High go up and down completely randomly.

Pair Corralation between Transamerica Small and Invesco High

Assuming the 90 days horizon Transamerica Small Cap is expected to under-perform the Invesco High. In addition to that, Transamerica Small is 12.69 times more volatile than Invesco High Yield. It trades about -0.1 of its total potential returns per unit of risk. Invesco High Yield is currently generating about 0.1 per unit of volatility. If you would invest  350.00  in Invesco High Yield on October 23, 2024 and sell it today you would earn a total of  5.00  from holding Invesco High Yield or generate 1.43% return on investment over 90 days.

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

Transamerica Small Cap  vs.  Invesco High Yield

Transamerica Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Transamerica Small Cap 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 basic 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.

Invesco High Yield

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco High Yield are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Invesco High 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 Small and Invesco High

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

The idea behind Transamerica Small Cap and Invesco High Yield 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.