Correlation Between Transamerica Financial and Payden Limited

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

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

Diversification Opportunities for Transamerica Financial and Payden Limited

0.73

Correlation Coefficient

Transamerica Financial  Payden Limited

Poor diversification

The 3 months correlation between Transamerica and Payden is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Transamerica Financial Life and Payden Limited Maturity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Payden Limited Maturity and Transamerica Financial 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 Financial Life are associated (or correlated) with Payden Limited. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Payden Limited Maturity has no effect on the direction of Transamerica Financial i.e., Transamerica Financial and Payden Limited go up and down completely randomly.

Pair Corralation between Transamerica Financial and Payden Limited

Assuming the 90 days horizon Transamerica Financial Life is expected to generate 25.46 times more return on investment than Payden Limited. However, Transamerica Financial is 25.46 times more volatile than Payden Limited Maturity. It trades about 0.02 of its potential returns per unit of risk. Payden Limited Maturity is currently generating about 0.22 per unit of risk. If you would invest  1,211  in Transamerica Financial Life on September 13, 2024 and sell it today you would earn a total of  3.00  from holding Transamerica Financial Life or generate 0.25% return on investment over 90 days.

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

Transamerica Financial Life  vs.  Payden Limited Maturity

Transamerica Financial

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Transamerica Financial Life are ranked lower than 7 (%) 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.

Payden Limited Maturity

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Payden Limited Maturity are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Payden Limited 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 Financial and Payden Limited

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

The idea behind Transamerica Financial Life and Payden Limited Maturity 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.