Correlation Between Vanguard Financials and Transamerica Small/mid

Can any of the company-specific risk be diversified away by investing in both Vanguard Financials 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 Vanguard Financials 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 Vanguard Financials Index and Transamerica Smallmid Cap, you can compare the effects of market volatilities on Vanguard Financials 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 Vanguard Financials with a short position of Transamerica Small/mid. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Financials and Transamerica Small/mid.

Diversification Opportunities for Vanguard Financials and Transamerica Small/mid

0.96

Correlation Coefficient

Vanguard Financials  Transamerica Small/mid

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 Financials Index 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 Vanguard Financials 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 Financials Index 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 Vanguard Financials i.e., Vanguard Financials and Transamerica Small/mid go up and down completely randomly.

Pair Corralation between Vanguard Financials and Transamerica Small/mid

If you would invest  2,737  in Transamerica Smallmid Cap on March 18, 2024 and sell it today you would earn a total of  0.00  from holding Transamerica Smallmid Cap or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	1.92%
Values	Daily Returns

Vanguard Financials Index  vs.  Transamerica Smallmid Cap

Vanguard Financials Index

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Financials Index 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 forward indicators remain fairly strong which may send shares a bit higher in July 2024. The current disturbance may also be a sign of long term up-swing for the fund investors.

Transamerica Smallmid Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Transamerica Smallmid Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Transamerica Small/mid is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Vanguard Financials and Transamerica Small/mid

The main advantage of trading using opposite Vanguard Financials and Transamerica Small/mid positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Financials 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 Vanguard Financials Index 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.