Correlation Between Western Asset and Sextant Short

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

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

Diversification Opportunities for Western Asset and Sextant Short

-0.37

Correlation Coefficient

Western Asset  Sextant Short

Very good diversification

The 3 months correlation between Western and Sextant is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset Mortgage and Sextant Short Term Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sextant Short Term and Western Asset 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 Western Asset Mortgage are associated (or correlated) with Sextant Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sextant Short Term has no effect on the direction of Western Asset i.e., Western Asset and Sextant Short go up and down completely randomly.

Pair Corralation between Western Asset and Sextant Short

Considering the 90-day investment horizon Western Asset Mortgage is expected to generate 4.38 times more return on investment than Sextant Short. However, Western Asset is 4.38 times more volatile than Sextant Short Term Bond. It trades about 0.17 of its potential returns per unit of risk. Sextant Short Term Bond is currently generating about 0.0 per unit of risk. If you would invest  1,166  in Western Asset Mortgage on September 13, 2024 and sell it today you would earn a total of  63.00  from holding Western Asset Mortgage or generate 5.4% return on investment over 90 days.

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

Western Asset Mortgage  vs.  Sextant Short Term Bond

Western Asset Mortgage

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Western Asset Mortgage are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of very healthy primary indicators, Western Asset is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Sextant Short Term

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sextant Short Term Bond has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Sextant Short is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Western Asset and Sextant Short

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

The idea behind Western Asset Mortgage and Sextant Short Term Bond 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.