Correlation Between Vanguard Small and Transamerica Large

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

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

Diversification Opportunities for Vanguard Small and Transamerica Large

0.96

Correlation Coefficient

Vanguard Small  Transamerica Large

Almost no diversification

The 3 months correlation between Vanguard and Transamerica is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Value and Transamerica Large Core in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transamerica Large Core and Vanguard Small 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 Vanguard Small Cap Value are associated (or correlated) with Transamerica Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transamerica Large Core has no effect on the direction of Vanguard Small i.e., Vanguard Small and Transamerica Large go up and down completely randomly.

Pair Corralation between Vanguard Small and Transamerica Large

Assuming the 90 days horizon Vanguard Small is expected to generate 1.04 times less return on investment than Transamerica Large. In addition to that, Vanguard Small is 1.45 times more volatile than Transamerica Large Core. It trades about 0.13 of its total potential returns per unit of risk. Transamerica Large Core is currently generating about 0.2 per unit of volatility. If you would invest  1,306  in Transamerica Large Core on September 13, 2024 and sell it today you would earn a total of  108.00  from holding Transamerica Large Core or generate 8.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

Vanguard Small Cap Value  vs.  Transamerica Large Core

Vanguard Small Cap

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Small Cap Value are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Transamerica Large Core

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Transamerica Large Core are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Transamerica Large may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Vanguard Small and Transamerica Large

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

The idea behind Vanguard Small Cap Value and Transamerica Large Core 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.