Correlation Between Western Asset and Special Opportunities

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

By analyzing existing cross correlation between Western Asset Emerging and Special Opportunities Closed, you can compare the effects of market volatilities on Western Asset and Special Opportunities 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 Special Opportunities. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Asset and Special Opportunities.

Diversification Opportunities for Western Asset and Special Opportunities

0.22

Correlation Coefficient

Western Asset  Special Opportunities

Modest diversification

The 3 months correlation between Western and Special is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset Emerging and Special Opportunities Closed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Special Opportunities 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 Emerging are associated (or correlated) with Special Opportunities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Special Opportunities has no effect on the direction of Western Asset i.e., Western Asset and Special Opportunities go up and down completely randomly.

Pair Corralation between Western Asset and Special Opportunities

Considering the 90-day investment horizon Western Asset Emerging is expected to under-perform the Special Opportunities. But the fund apears to be less risky and, when comparing its historical volatility, Western Asset Emerging is 1.27 times less risky than Special Opportunities. The fund trades about -0.2 of its potential returns per unit of risk. The Special Opportunities Closed is currently generating about -0.15 of returns per unit of risk over similar time horizon. If you would invest  1,518  in Special Opportunities Closed on October 5, 2024 and sell it today you would lose (47.00) from holding Special Opportunities Closed or give up 3.1% of portfolio value over 90 days.

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

Western Asset Emerging  vs.  Special Opportunities Closed

Western Asset Emerging

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Western Asset Emerging has generated negative risk-adjusted returns adding no value to fund investors. In spite of rather sound primary indicators, Western Asset is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Special Opportunities

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Special Opportunities Closed are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of rather unsteady basic indicators, Special Opportunities may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Western Asset and Special Opportunities

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

The idea behind Western Asset Emerging and Special Opportunities Closed 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.

Check out your portfolio center.

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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.