Correlation Between Sterling Capital and Western Asset

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

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

Diversification Opportunities for Sterling Capital and Western Asset

0.75

Correlation Coefficient

Sterling Capital  Western Asset

Poor diversification

The 3 months correlation between STERLING and Western is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Sterling Capital Short and Western Asset California in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Asset California and Sterling Capital 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 Sterling Capital Short 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 California has no effect on the direction of Sterling Capital i.e., Sterling Capital and Western Asset go up and down completely randomly.

Pair Corralation between Sterling Capital and Western Asset

Assuming the 90 days horizon Sterling Capital is expected to generate 2.19 times less return on investment than Western Asset. But when comparing it to its historical volatility, Sterling Capital Short is 2.4 times less risky than Western Asset. It trades about 0.06 of its potential returns per unit of risk. Western Asset California is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,407  in Western Asset California on September 2, 2024 and sell it today you would earn a total of  11.00  from holding Western Asset California or generate 0.78% return on investment over 90 days.

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

Sterling Capital Short  vs.  Western Asset California

Sterling Capital Short

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sterling Capital Short are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Sterling Capital is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Western Asset California

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Western Asset California are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Western Asset is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Sterling Capital and Western Asset

The main advantage of trading using opposite Sterling Capital and Western Asset positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sterling Capital 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 Sterling Capital Short and Western Asset California 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.