Correlation Between Adams Natural and Transamerica Large

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

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

Diversification Opportunities for Adams Natural and Transamerica Large

0.81

Correlation Coefficient

Adams Natural  Transamerica Large

Very poor diversification

The 3 months correlation between Adams and Transamerica is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Adams Natural Resources and Transamerica Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transamerica Large Cap and Adams Natural 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 Adams Natural Resources are associated (or correlated) with Transamerica Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transamerica Large Cap has no effect on the direction of Adams Natural i.e., Adams Natural and Transamerica Large go up and down completely randomly.

Pair Corralation between Adams Natural and Transamerica Large

Considering the 90-day investment horizon Adams Natural Resources is expected to under-perform the Transamerica Large. In addition to that, Adams Natural is 1.27 times more volatile than Transamerica Large Cap. It trades about -0.06 of its total potential returns per unit of risk. Transamerica Large Cap is currently generating about -0.05 per unit of volatility. If you would invest  1,507  in Transamerica Large Cap on September 30, 2024 and sell it today you would lose (39.00) from holding Transamerica Large Cap or give up 2.59% of portfolio value over 90 days.

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

Adams Natural Resources  vs.  Transamerica Large Cap

Adams Natural Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Adams Natural Resources has generated negative risk-adjusted returns adding no value to fund investors. In spite of very healthy technical and fundamental indicators, Adams Natural is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Transamerica Large Cap

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Adams Natural and Transamerica Large

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

The idea behind Adams Natural Resources and Transamerica Large 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.