Correlation Between Wasatch Micro and Transamerica Financial

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

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

Diversification Opportunities for Wasatch Micro and Transamerica Financial

-0.28

Correlation Coefficient

Wasatch Micro  Transamerica Financial

Very good diversification

The 3 months correlation between Wasatch and Transamerica is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Wasatch Micro Cap and Transamerica Financial Life in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transamerica Financial and Wasatch Micro 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 Wasatch Micro Cap 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 Wasatch Micro i.e., Wasatch Micro and Transamerica Financial go up and down completely randomly.

Pair Corralation between Wasatch Micro and Transamerica Financial

Assuming the 90 days horizon Wasatch Micro Cap is expected to under-perform the Transamerica Financial. In addition to that, Wasatch Micro is 1.56 times more volatile than Transamerica Financial Life. It trades about -0.23 of its total potential returns per unit of risk. Transamerica Financial Life is currently generating about 0.04 per unit of volatility. If you would invest  1,059  in Transamerica Financial Life on December 23, 2024 and sell it today you would earn a total of  19.00  from holding Transamerica Financial Life or generate 1.79% return on investment over 90 days.

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

Wasatch Micro Cap  vs.  Transamerica Financial Life

Wasatch Micro Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Wasatch Micro Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's fundamental indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Transamerica Financial

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Transamerica Financial Life are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Transamerica Financial is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Wasatch Micro and Transamerica Financial

The main advantage of trading using opposite Wasatch Micro and Transamerica Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wasatch Micro 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 Wasatch Micro Cap 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.