Correlation Between Transamerica Large and Vanguard European

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

Diversification Opportunities for Transamerica Large and Vanguard European

0.12

Correlation Coefficient

Transamerica Large  Vanguard European

Average diversification

The 3 months correlation between TRANSAMERICA and Vanguard is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Transamerica Large Cap and Vanguard European Stock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard European Stock 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 Vanguard European. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard European Stock has no effect on the direction of Transamerica Large i.e., Transamerica Large and Vanguard European go up and down completely randomly.

Pair Corralation between Transamerica Large and Vanguard European

Assuming the 90 days horizon Transamerica Large is expected to generate 13.34 times less return on investment than Vanguard European. But when comparing it to its historical volatility, Transamerica Large Cap is 1.16 times less risky than Vanguard European. It trades about 0.02 of its potential returns per unit of risk. Vanguard European Stock is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  3,435  in Vanguard European Stock on December 25, 2024 and sell it today you would earn a total of  414.00  from holding Vanguard European Stock or generate 12.05% return on investment over 90 days.

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

Transamerica Large Cap  vs.  Vanguard European Stock

Transamerica Large Cap

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Transamerica Large Cap are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. 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.

Vanguard European Stock

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard European Stock are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard European may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Transamerica Large and Vanguard European

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

The idea behind Transamerica Large Cap and Vanguard European Stock 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 Stocks Directory module to find actively traded stocks across global markets.