Correlation Between Transamerica Smallmid and Transamerica Capital

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

Diversification Opportunities for Transamerica Smallmid and Transamerica Capital

0.89

Correlation Coefficient

Transamerica Smallmid  Transamerica Capital

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 Smallmid Cap 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 Smallmid 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 Smallmid Cap 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 Smallmid i.e., Transamerica Smallmid and Transamerica Capital go up and down completely randomly.

Pair Corralation between Transamerica Smallmid and Transamerica Capital

Assuming the 90 days horizon Transamerica Smallmid is expected to generate 5.01 times less return on investment than Transamerica Capital. But when comparing it to its historical volatility, Transamerica Smallmid Cap is 1.83 times less risky than Transamerica Capital. It trades about 0.14 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 Smallmid Cap  vs.  Transamerica Capital Growth

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.

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 Smallmid and Transamerica Capital

The main advantage of trading using opposite Transamerica Smallmid and Transamerica Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Transamerica Smallmid 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 Smallmid Cap 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.

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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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.