Correlation Between Farmers and Western Asset

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

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

Diversification Opportunities for Farmers and Western Asset

0.47

Correlation Coefficient

Farmers  Western Asset

Very weak diversification

The 3 months correlation between Farmers and Western is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Farmers And Merchants 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 Farmers 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 Farmers And Merchants 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 Farmers i.e., Farmers and Western Asset go up and down completely randomly.

Pair Corralation between Farmers and Western Asset

Given the investment horizon of 90 days Farmers is expected to generate 4.25 times less return on investment than Western Asset. But when comparing it to its historical volatility, Farmers And Merchants is 1.12 times less risky than Western Asset. It trades about 0.05 of its potential returns per unit of risk. Western Asset Global is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  1,080  in Western Asset Global on December 28, 2024 and sell it today you would earn a total of  63.00  from holding Western Asset Global or generate 5.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.36%
Values	Daily Returns

Farmers And Merchants  vs.  Western Asset Global

Farmers And Merchants

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Farmers And Merchants are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental drivers, Farmers is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Western Asset Global

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Western Asset Global are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. 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 Farmers and Western Asset

The main advantage of trading using opposite Farmers and Western Asset positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Farmers 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 Farmers And Merchants 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.