Correlation Between Smead Value and Transamerica Large

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

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

Diversification Opportunities for Smead Value and Transamerica Large

0.99

Correlation Coefficient

Smead Value  Transamerica Large

No risk reduction

The 3 months correlation between Smead and Transamerica is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Smead Value Fund 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 Smead Value 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 Smead Value Fund 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 Smead Value i.e., Smead Value and Transamerica Large go up and down completely randomly.

Pair Corralation between Smead Value and Transamerica Large

Assuming the 90 days horizon Smead Value Fund is expected to generate 1.45 times more return on investment than Transamerica Large. However, Smead Value is 1.45 times more volatile than Transamerica Large Cap. It trades about 0.12 of its potential returns per unit of risk. Transamerica Large Cap is currently generating about 0.14 per unit of risk. If you would invest  7,839  in Smead Value Fund on January 29, 2024 and sell it today you would earn a total of  341.00  from holding Smead Value Fund or generate 4.35% return on investment over 90 days.

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

Smead Value Fund  vs.  Transamerica Large Cap

Smead Value Fund

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Smead Value Fund are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak essential indicators, Smead Value may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Transamerica Large Cap

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Transamerica Large Cap are ranked lower than 14 (%) 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 May 2024.

Pair Trading with Smead Value and Transamerica Large

The main advantage of trading using opposite Smead Value and Transamerica Large positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Smead Value 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 Smead Value Fund 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.