Correlation Between Transamerica High and Tax Free

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

By analyzing existing cross correlation between Transamerica High Yield and Tax Free Conservative Income, you can compare the effects of market volatilities on Transamerica High and Tax Free 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 High with a short position of Tax Free. Check out your portfolio center. Please also check ongoing floating volatility patterns of Transamerica High and Tax Free.

Diversification Opportunities for Transamerica High and Tax Free

0.96

Correlation Coefficient

Transamerica High  Tax Free

Almost no diversification

The 3 months correlation between Transamerica and Tax is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Transamerica High Yield and Tax Free Conservative Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tax Free Conservative and Transamerica High 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 High Yield are associated (or correlated) with Tax Free. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tax Free Conservative has no effect on the direction of Transamerica High i.e., Transamerica High and Tax Free go up and down completely randomly.

Pair Corralation between Transamerica High and Tax Free

Assuming the 90 days horizon Transamerica High Yield is expected to generate 5.12 times more return on investment than Tax Free. However, Transamerica High is 5.12 times more volatile than Tax Free Conservative Income. It trades about 0.31 of its potential returns per unit of risk. Tax Free Conservative Income is currently generating about 0.22 per unit of risk. If you would invest  793.00  in Transamerica High Yield on May 7, 2025 and sell it today you would earn a total of  30.00  from holding Transamerica High Yield or generate 3.78% return on investment over 90 days.

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

Transamerica High Yield  vs.  Tax Free Conservative Income

Transamerica High Yield

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Transamerica High Yield are ranked lower than 24 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Transamerica High is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Tax Free Conservative

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Tax Free Conservative Income are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Tax Free 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 High and Tax Free

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

The idea behind Transamerica High Yield and Tax Free Conservative Income 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.