Correlation Between European Equity and Western Asset

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

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

Diversification Opportunities for European Equity and Western Asset

0.94

Correlation Coefficient

European Equity  Western Asset

Almost no diversification

The 3 months correlation between European and Western is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding European Equity Closed 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 European Equity 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 European Equity Closed 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 European Equity i.e., European Equity and Western Asset go up and down completely randomly.

Pair Corralation between European Equity and Western Asset

Considering the 90-day investment horizon European Equity is expected to generate 1.48 times less return on investment than Western Asset. In addition to that, European Equity is 1.58 times more volatile than Western Asset Global. It trades about 0.02 of its total potential returns per unit of risk. Western Asset Global is currently generating about 0.05 per unit of volatility. If you would invest  1,091  in Western Asset Global on September 2, 2024 and sell it today you would earn a total of  76.00  from holding Western Asset Global or generate 6.97% return on investment over 90 days.

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

European Equity Closed  vs.  Western Asset Global

European Equity Closed

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days European Equity Closed has generated negative risk-adjusted returns adding no value to fund investors. Despite latest weak performance, the Fund's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

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 European Equity and Western Asset

The main advantage of trading using opposite European Equity and Western Asset positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if European Equity 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 European Equity Closed 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 Global Correlations module to find global opportunities by holding instruments from different markets.