Correlation Between Transamerica Large and Wilmington Broad

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

Diversification Opportunities for Transamerica Large and Wilmington Broad

0.64

Correlation Coefficient

Transamerica Large  Wilmington Broad

Poor diversification

The 3 months correlation between Transamerica and Wilmington is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Transamerica Large Cap and Wilmington Broad Market in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wilmington Broad Market 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 Wilmington Broad. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wilmington Broad Market has no effect on the direction of Transamerica Large i.e., Transamerica Large and Wilmington Broad go up and down completely randomly.

Pair Corralation between Transamerica Large and Wilmington Broad

Assuming the 90 days horizon Transamerica Large Cap is expected to generate 2.11 times more return on investment than Wilmington Broad. However, Transamerica Large is 2.11 times more volatile than Wilmington Broad Market. It trades about 0.14 of its potential returns per unit of risk. Wilmington Broad Market is currently generating about 0.21 per unit of risk. If you would invest  1,444  in Transamerica Large Cap on December 3, 2024 and sell it today you would earn a total of  48.00  from holding Transamerica Large Cap or generate 3.32% return on investment over 90 days.

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

Transamerica Large Cap  vs.  Wilmington Broad Market

Transamerica Large Cap

Risk-Adjusted Performance

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.

Wilmington Broad Market

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Wilmington Broad Market are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong primary indicators, Wilmington Broad 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 Wilmington Broad

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

The idea behind Transamerica Large Cap and Wilmington Broad Market 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.