Correlation Between Transamerica Large and Kinetics Small

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

By analyzing existing cross correlation between Transamerica Large Cap and Kinetics Small Cap, you can compare the effects of market volatilities on Transamerica Large and Kinetics Small 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 Kinetics Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Transamerica Large and Kinetics Small.

Diversification Opportunities for Transamerica Large and Kinetics Small

0.74

Correlation Coefficient

Transamerica Large  Kinetics Small

Poor diversification

The 3 months correlation between Transamerica and Kinetics is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Transamerica Large Cap and Kinetics Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kinetics 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 Cap are associated (or correlated) with Kinetics Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kinetics Small Cap has no effect on the direction of Transamerica Large i.e., Transamerica Large and Kinetics Small go up and down completely randomly.

Pair Corralation between Transamerica Large and Kinetics Small

Assuming the 90 days horizon Transamerica Large Cap is expected to generate 0.3 times more return on investment than Kinetics Small. However, Transamerica Large Cap is 3.3 times less risky than Kinetics Small. It trades about -0.39 of its potential returns per unit of risk. Kinetics Small Cap is currently generating about -0.33 per unit of risk. If you would invest  1,564  in Transamerica Large Cap on September 27, 2024 and sell it today you would lose (96.00) from holding Transamerica Large Cap or give up 6.14% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Transamerica Large Cap  vs.  Kinetics Small Cap

Transamerica Large Cap

Risk-Adjusted Performance

0 of 100

Very Weak

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

Kinetics Small Cap

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Kinetics Small Cap are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Kinetics Small showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Transamerica Large and Kinetics Small

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

The idea behind Transamerica Large Cap and Kinetics Small Cap 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.

Check out your portfolio center.

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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.