Correlation Between Transamerica Capital and Transamerica Smallmid

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

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

Diversification Opportunities for Transamerica Capital and Transamerica Smallmid

0.89

Correlation Coefficient

Transamerica Capital  Transamerica Smallmid

Very poor diversification

The 3 months correlation between Transamerica and Transamerica is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Transamerica Capital Growth 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 Capital 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 Capital Growth are associated (or correlated) with Transamerica Smallmid. 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 Capital i.e., Transamerica Capital and Transamerica Smallmid go up and down completely randomly.

Pair Corralation between Transamerica Capital and Transamerica Smallmid

Assuming the 90 days horizon Transamerica Capital Growth is expected to generate 1.83 times more return on investment than Transamerica Smallmid. However, Transamerica Capital is 1.83 times more volatile than Transamerica Smallmid Cap. It trades about 0.37 of its potential returns per unit of risk. Transamerica Smallmid Cap is currently generating about 0.14 per unit of risk. If you would invest  2,659  in Transamerica Capital Growth on September 3, 2024 and sell it today you would earn a total of  1,172  from holding Transamerica Capital Growth or generate 44.08% return on investment over 90 days.

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

Transamerica Capital Growth  vs.  Transamerica Smallmid Cap

Transamerica Capital

Risk-Adjusted Performance

29 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Transamerica Capital Growth are ranked lower than 29 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Transamerica Capital showed solid returns over the last few months and may actually be approaching a breakup point.

Transamerica Smallmid Cap

Risk-Adjusted Performance

10 of 100

OK

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

Pair Trading with Transamerica Capital and Transamerica Smallmid

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

The idea behind Transamerica Capital Growth 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.