Correlation Between Long Term and Western Asset

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

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

Diversification Opportunities for Long Term and Western Asset

0.79

Correlation Coefficient

Long Term  Western Asset

Poor diversification

The 3 months correlation between Long and Western is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding The Long Term and Western Asset High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Asset High and Long Term 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 The Long Term 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 High has no effect on the direction of Long Term i.e., Long Term and Western Asset go up and down completely randomly.

Pair Corralation between Long Term and Western Asset

Assuming the 90 days horizon The Long Term is expected to generate 8.98 times more return on investment than Western Asset. However, Long Term is 8.98 times more volatile than Western Asset High. It trades about 0.2 of its potential returns per unit of risk. Western Asset High is currently generating about 0.11 per unit of risk. If you would invest  2,956  in The Long Term on September 14, 2024 and sell it today you would earn a total of  559.00  from holding The Long Term or generate 18.91% return on investment over 90 days.

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

The Long Term  vs.  Western Asset High

Long Term

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in The Long Term are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak essential indicators, Long Term showed solid returns over the last few months and may actually be approaching a breakup point.

Western Asset High

Risk-Adjusted Performance

8 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Western Asset High are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic 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 Long Term and Western Asset

The main advantage of trading using opposite Long Term and Western Asset positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Long Term 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 The Long Term and Western Asset High 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.