Correlation Between Transamerica Large and North Star

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

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

Diversification Opportunities for Transamerica Large and North Star

0.8

Correlation Coefficient

Transamerica Large  North Star

Very poor diversification

The 3 months correlation between Transamerica and North is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Transamerica Large Cap and North Star Micro in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on North Star Micro and Transamerica Large 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 Large Cap are associated (or correlated) with North Star. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of North Star Micro has no effect on the direction of Transamerica Large i.e., Transamerica Large and North Star go up and down completely randomly.

Pair Corralation between Transamerica Large and North Star

Assuming the 90 days horizon Transamerica Large Cap is expected to under-perform the North Star. But the mutual fund apears to be less risky and, when comparing its historical volatility, Transamerica Large Cap is 1.76 times less risky than North Star. The mutual fund trades about -0.03 of its potential returns per unit of risk. The North Star Micro is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  4,224  in North Star Micro on September 21, 2024 and sell it today you would lose (43.00) from holding North Star Micro or give up 1.02% of portfolio value over 90 days.

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

Transamerica Large Cap  vs.  North Star Micro

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 basic indicators, Transamerica Large is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

North Star Micro

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Transamerica Large and North Star

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

The idea behind Transamerica Large Cap and North Star Micro 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.