Correlation Between Transamerica Large and Transamerica Mid

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

Diversification Opportunities for Transamerica Large and Transamerica Mid

0.63

Correlation Coefficient

Transamerica Large  Transamerica Mid

Poor diversification

The 3 months correlation between Transamerica and Transamerica is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Transamerica Large Cap and Transamerica Mid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transamerica Mid 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 Transamerica Mid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transamerica Mid Cap has no effect on the direction of Transamerica Large i.e., Transamerica Large and Transamerica Mid go up and down completely randomly.

Pair Corralation between Transamerica Large and Transamerica Mid

Assuming the 90 days horizon Transamerica Large Cap is expected to under-perform the Transamerica Mid. But the mutual fund apears to be less risky and, when comparing its historical volatility, Transamerica Large Cap is 2.03 times less risky than Transamerica Mid. The mutual fund trades about -0.37 of its potential returns per unit of risk. The Transamerica Mid Cap is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  1,057  in Transamerica Mid Cap on September 23, 2024 and sell it today you would lose (19.00) from holding Transamerica Mid Cap or give up 1.8% of portfolio value over 90 days.

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

Transamerica Large Cap  vs.  Transamerica Mid 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.

Transamerica Mid Cap

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Transamerica Mid Cap are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Transamerica Mid may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Transamerica Large and Transamerica Mid

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

The idea behind Transamerica Large Cap and Transamerica Mid 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.

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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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.