Correlation Between Transamerica Flexible and Transamerica Small/mid

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

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

Diversification Opportunities for Transamerica Flexible and Transamerica Small/mid

0.67

Correlation Coefficient

Transamerica Flexible  Transamerica Small/mid

Poor diversification

The 3 months correlation between Transamerica and Transamerica is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Transamerica Flexible Income and Transamerica Smallmid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transamerica Smallmid Cap and Transamerica Flexible 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 Flexible Income are associated (or correlated) with Transamerica Small/mid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transamerica Smallmid Cap has no effect on the direction of Transamerica Flexible i.e., Transamerica Flexible and Transamerica Small/mid go up and down completely randomly.

Pair Corralation between Transamerica Flexible and Transamerica Small/mid

Assuming the 90 days horizon Transamerica Flexible is expected to generate 3.76 times less return on investment than Transamerica Small/mid. But when comparing it to its historical volatility, Transamerica Flexible Income is 2.13 times less risky than Transamerica Small/mid. It trades about 0.03 of its potential returns per unit of risk. Transamerica Smallmid Cap is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  2,750  in Transamerica Smallmid Cap on February 24, 2024 and sell it today you would earn a total of  52.00  from holding Transamerica Smallmid Cap or generate 1.89% return on investment over 90 days.

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

Transamerica Flexible Income  vs.  Transamerica Smallmid Cap

Transamerica Flexible

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Transamerica Flexible Income 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 Flexible is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Transamerica Smallmid Cap

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Transamerica Smallmid Cap are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Transamerica Small/mid 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 Flexible and Transamerica Small/mid

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

The idea behind Transamerica Flexible Income and Transamerica Smallmid Cap 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.