Correlation Between Small Company and Transamerica Large

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

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

Diversification Opportunities for Small Company and Transamerica Large

0.91

Correlation Coefficient

Small Company  Transamerica Large

Almost no diversification

The 3 months correlation between Small and Transamerica is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Small Pany Value 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 Small Company 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 Small Pany Value 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 Small Company i.e., Small Company and Transamerica Large go up and down completely randomly.

Pair Corralation between Small Company and Transamerica Large

Assuming the 90 days horizon Small Pany Value is expected to generate 1.99 times more return on investment than Transamerica Large. However, Small Company is 1.99 times more volatile than Transamerica Large Cap. It trades about 0.14 of its potential returns per unit of risk. Transamerica Large Cap is currently generating about 0.17 per unit of risk. If you would invest  3,237  in Small Pany Value on August 31, 2024 and sell it today you would earn a total of  370.00  from holding Small Pany Value or generate 11.43% return on investment over 90 days.

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

Small Pany Value  vs.  Transamerica Large Cap

Small Pany Value

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Small Pany Value are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Small Company may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Transamerica Large Cap

Risk-Adjusted Performance

13 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Transamerica Large Cap are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Transamerica Large may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Small Company and Transamerica Large

The main advantage of trading using opposite Small Company and Transamerica Large positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Company 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 Small Pany Value 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.

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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.