Correlation Between Western Asset and Saba Capital

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

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

Diversification Opportunities for Western Asset and Saba Capital

0.73

Correlation Coefficient

Western Asset  Saba Capital

Poor diversification

The 3 months correlation between Western and Saba is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset Global and Saba Capital Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Saba Capital Income 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 Global are associated (or correlated) with Saba Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Saba Capital Income has no effect on the direction of Western Asset i.e., Western Asset and Saba Capital go up and down completely randomly.

Pair Corralation between Western Asset and Saba Capital

Considering the 90-day investment horizon Western Asset Global is expected to generate 0.73 times more return on investment than Saba Capital. However, Western Asset Global is 1.37 times less risky than Saba Capital. It trades about 0.17 of its potential returns per unit of risk. Saba Capital Income is currently generating about 0.1 per unit of risk. If you would invest  1,095  in Western Asset Global on December 24, 2024 and sell it today you would earn a total of  60.00  from holding Western Asset Global or generate 5.48% return on investment over 90 days.

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

Western Asset Global  vs.  Saba Capital Income

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 13 (%) 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.

Saba Capital Income

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Saba Capital Income are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Saba Capital is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Western Asset and Saba Capital

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

The idea behind Western Asset Global and Saba Capital Income 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.