Correlation Between American Business and Western Asset

Can any of the company-specific risk be diversified away by investing in both American Business and Western 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 Business and Western Asset into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between American Business Bk and Western Asset Global, you can compare the effects of market volatilities on American Business and Western 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 Business with a short position of Western Asset. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Business and Western Asset.

Diversification Opportunities for American Business and Western Asset

-0.88

Correlation Coefficient

American Business  Western Asset

Pay attention - limited upside

The 3 months correlation between American and Western is -0.88. Overlapping area represents the amount of risk that can be diversified away by holding American Business Bk and Western Asset Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Asset Global and American Business 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 Business Bk are associated (or correlated) with Western Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Asset Global has no effect on the direction of American Business i.e., American Business and Western Asset go up and down completely randomly.

Pair Corralation between American Business and Western Asset

Given the investment horizon of 90 days American Business Bk is expected to generate 2.02 times more return on investment than Western Asset. However, American Business is 2.02 times more volatile than Western Asset Global. It trades about 0.33 of its potential returns per unit of risk. Western Asset Global is currently generating about -0.17 per unit of risk. If you would invest  3,640  in American Business Bk on September 4, 2024 and sell it today you would earn a total of  835.00  from holding American Business Bk or generate 22.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

American Business Bk  vs.  Western Asset Global

American Business

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in American Business Bk are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating fundamental drivers, American Business showed solid returns over the last few months and may actually be approaching a breakup point.

Western Asset Global

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Western Asset Global has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, Western Asset is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with American Business and Western Asset

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

The idea behind American Business Bk and Western Asset Global 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.