Correlation Between Nationwide Small and Western Asset

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

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

Diversification Opportunities for Nationwide Small and Western Asset

0.21

Correlation Coefficient

Nationwide Small  Western Asset

Modest diversification

The 3 months correlation between Nationwide and Western is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Nationwide Small Cap and Western Asset Inflation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Asset Inflation and Nationwide Small 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 Nationwide Small Cap 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 Inflation has no effect on the direction of Nationwide Small i.e., Nationwide Small and Western Asset go up and down completely randomly.

Pair Corralation between Nationwide Small and Western Asset

Assuming the 90 days horizon Nationwide Small Cap is expected to generate 5.13 times more return on investment than Western Asset. However, Nationwide Small is 5.13 times more volatile than Western Asset Inflation. It trades about 0.0 of its potential returns per unit of risk. Western Asset Inflation is currently generating about -0.17 per unit of risk. If you would invest  1,203  in Nationwide Small Cap on October 6, 2024 and sell it today you would lose (11.00) from holding Nationwide Small Cap or give up 0.91% of portfolio value over 90 days.

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

Nationwide Small Cap  vs.  Western Asset Inflation

Nationwide Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nationwide Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Nationwide Small is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Western Asset Inflation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Western Asset Inflation has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Western Asset is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Nationwide Small and Western Asset

The main advantage of trading using opposite Nationwide Small and Western Asset positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nationwide Small 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 Nationwide Small Cap and Western Asset Inflation 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.