Correlation Between Western Asset and New Germany

Can any of the company-specific risk be diversified away by investing in both Western Asset and New Germany 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 New Germany 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 New Germany Closed, you can compare the effects of market volatilities on Western Asset and New Germany 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 New Germany. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Asset and New Germany.

Diversification Opportunities for Western Asset and New Germany

0.6

Correlation Coefficient

Western Asset  New Germany

Poor diversification

The 3 months correlation between Western and New is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset Global and New Germany Closed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Germany Closed 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 New Germany. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Germany Closed has no effect on the direction of Western Asset i.e., Western Asset and New Germany go up and down completely randomly.

Pair Corralation between Western Asset and New Germany

Considering the 90-day investment horizon Western Asset Global is expected to under-perform the New Germany. But the etf apears to be less risky and, when comparing its historical volatility, Western Asset Global is 1.96 times less risky than New Germany. The etf trades about -0.18 of its potential returns per unit of risk. The New Germany Closed is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  849.00  in New Germany Closed on September 3, 2024 and sell it today you would lose (36.00) from holding New Germany Closed or give up 4.24% of portfolio value over 90 days.

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

Western Asset Global  vs.  New Germany Closed

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.

New Germany Closed

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days New Germany Closed has generated negative risk-adjusted returns adding no value to fund investors. Despite nearly stable technical and fundamental indicators, New Germany is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Western Asset and New Germany

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

The idea behind Western Asset Global and New Germany 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.