Can any of the company-specific risk be diversified away by investing in both American Funds and Transamerica Asset 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 American Funds and Transamerica Asset into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Funds American and Transamerica Asset Allocation, you can compare the effects of market volatilities on American Funds and Transamerica Asset 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 American Funds with a short position of Transamerica Asset. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and Transamerica Asset.
Diversification Opportunities for American Funds and Transamerica Asset
The 3 months correlation between American and Transamerica is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding American Funds American and Transamerica Asset Allocation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transamerica Asset and American Funds 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 American Funds American are associated (or correlated) with Transamerica Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transamerica Asset has no effect on the direction of American Funds i.e., American Funds and Transamerica Asset go up and down completely randomly.
Pair Corralation between American Funds and Transamerica Asset
Assuming the 90 days horizon American Funds American is expected to generate 0.95 times more return on investment than Transamerica Asset. However, American Funds American is 1.05 times less risky than Transamerica Asset. It trades about 0.14 of its potential returns per unit of risk. Transamerica Asset Allocation is currently generating about 0.1 per unit of risk. If you would invest 3,338 in American Funds American on March 6, 2024 and sell it today you would earn a total of 39.00 from holding American Funds American or generate 1.17% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in American Funds American are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, American Funds is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Compared to the overall equity markets, risk-adjusted returns on investments in Transamerica Asset Allocation are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Transamerica Asset is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.