Correlation Between Kinetics Small and Western Asset

Can any of the company-specific risk be diversified away by investing in both Kinetics 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 Kinetics 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 Kinetics Small Cap and Western Asset Porate, you can compare the effects of market volatilities on Kinetics 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 Kinetics Small with a short position of Western Asset. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kinetics Small and Western Asset.

Diversification Opportunities for Kinetics Small and Western Asset

0.43

Correlation Coefficient

Kinetics Small  Western Asset

Very weak diversification

The 3 months correlation between Kinetics and Western is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Kinetics Small Cap and Western Asset Porate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Asset Porate and Kinetics 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 Kinetics 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 Porate has no effect on the direction of Kinetics Small i.e., Kinetics Small and Western Asset go up and down completely randomly.

Pair Corralation between Kinetics Small and Western Asset

Assuming the 90 days horizon Kinetics Small Cap is expected to under-perform the Western Asset. In addition to that, Kinetics Small is 6.24 times more volatile than Western Asset Porate. It trades about -0.05 of its total potential returns per unit of risk. Western Asset Porate is currently generating about 0.01 per unit of volatility. If you would invest  1,059  in Western Asset Porate on December 2, 2024 and sell it today you would earn a total of  1.00  from holding Western Asset Porate or generate 0.09% return on investment over 90 days.

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

Kinetics Small Cap  vs.  Western Asset Porate

Kinetics Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Kinetics Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Western Asset Porate

Risk-Adjusted Performance

Very Weak

Over the last 90 days Western Asset Porate has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong essential 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 Kinetics Small and Western Asset

The main advantage of trading using opposite Kinetics Small and Western Asset positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kinetics 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 Kinetics Small Cap and Western Asset Porate 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.