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 High, 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

0.9

Correlation Coefficient

European Equity  Western Asset

Almost no diversification

The 3 months correlation between European and Western is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding European Equity Closed 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 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 High 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 Closed is expected to generate 1.71 times more return on investment than Western Asset. However, European Equity is 1.71 times more volatile than Western Asset High. It trades about 0.23 of its potential returns per unit of risk. Western Asset High is currently generating about 0.15 per unit of risk. If you would invest  814.00  in European Equity Closed on December 29, 2024 and sell it today you would earn a total of  105.00  from holding European Equity Closed or generate 12.9% 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 High

European Equity Closed

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in European Equity Closed are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. Despite somewhat weak technical and fundamental indicators, European Equity sustained solid returns over the last few months and may actually be approaching a breakup point.

Western Asset High

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Western Asset High are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of very healthy forward 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 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.