Correlation Between Transamerica Multi-managed and Transamerica Capital

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

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

Diversification Opportunities for Transamerica Multi-managed and Transamerica Capital

0.83

Correlation Coefficient

Transamerica Multi-managed  Transamerica Capital

Very poor diversification

The 3 months correlation between Transamerica and Transamerica is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Transamerica Multi Managed Bal and Transamerica Capital Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transamerica Capital and Transamerica Multi-managed 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 Multi Managed Balanced are associated (or correlated) with Transamerica Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transamerica Capital has no effect on the direction of Transamerica Multi-managed i.e., Transamerica Multi-managed and Transamerica Capital go up and down completely randomly.

Pair Corralation between Transamerica Multi-managed and Transamerica Capital

Assuming the 90 days horizon Transamerica Multi-managed is expected to generate 7.62 times less return on investment than Transamerica Capital. But when comparing it to its historical volatility, Transamerica Multi Managed Balanced is 3.56 times less risky than Transamerica Capital. It trades about 0.17 of its potential returns per unit of risk. Transamerica Capital Growth is currently generating about 0.37 of returns per unit of risk over similar time horizon. 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 Multi Managed Bal  vs.  Transamerica Capital Growth

Transamerica Multi-managed

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Transamerica Multi Managed Balanced are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong essential indicators, Transamerica Multi-managed is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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.

Pair Trading with Transamerica Multi-managed and Transamerica Capital

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

The idea behind Transamerica Multi Managed Balanced and Transamerica Capital Growth 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.

Check out your portfolio center.

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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.