Correlation Between Intermediate Term and Transamerica Financial

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

By analyzing existing cross correlation between Intermediate Term Tax Free Bond and Transamerica Financial Life, you can compare the effects of market volatilities on Intermediate Term and Transamerica Financial 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 Intermediate Term with a short position of Transamerica Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Intermediate Term and Transamerica Financial.

Diversification Opportunities for Intermediate Term and Transamerica Financial

0.54

Correlation Coefficient

Intermediate Term  Transamerica Financial

Very weak diversification

The 3 months correlation between Intermediate and Transamerica is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Intermediate Term Tax Free Bon and Transamerica Financial Life in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transamerica Financial and Intermediate Term 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 Intermediate Term Tax Free Bond are associated (or correlated) with Transamerica Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transamerica Financial has no effect on the direction of Intermediate Term i.e., Intermediate Term and Transamerica Financial go up and down completely randomly.

Pair Corralation between Intermediate Term and Transamerica Financial

Assuming the 90 days horizon Intermediate Term is expected to generate 2.66 times less return on investment than Transamerica Financial. But when comparing it to its historical volatility, Intermediate Term Tax Free Bond is 4.67 times less risky than Transamerica Financial. It trades about 0.06 of its potential returns per unit of risk. Transamerica Financial Life is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  944.00  in Transamerica Financial Life on October 5, 2024 and sell it today you would earn a total of  116.00  from holding Transamerica Financial Life or generate 12.29% return on investment over 90 days.

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

Intermediate Term Tax Free Bon  vs.  Transamerica Financial Life

Intermediate Term Tax

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Intermediate Term Tax Free Bond has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Intermediate Term is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Transamerica Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Transamerica Financial Life has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Intermediate Term and Transamerica Financial

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

The idea behind Intermediate Term Tax Free Bond and Transamerica Financial Life 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.