Correlation Between Optimum Small and Western Asset

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

Diversification Opportunities for Optimum Small and Western Asset

-0.68

Correlation Coefficient

Optimum Small  Western Asset

Excellent diversification

The 3 months correlation between Optimum and Western is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Optimum Small Mid Cap and Western Asset Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Asset Mortgage and Optimum 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 Optimum Small Mid 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 Mortgage has no effect on the direction of Optimum Small i.e., Optimum Small and Western Asset go up and down completely randomly.

Pair Corralation between Optimum Small and Western Asset

Assuming the 90 days horizon Optimum Small Mid Cap is expected to under-perform the Western Asset. In addition to that, Optimum Small is 2.88 times more volatile than Western Asset Mortgage. It trades about -0.14 of its total potential returns per unit of risk. Western Asset Mortgage is currently generating about 0.1 per unit of volatility. If you would invest  1,146  in Western Asset Mortgage on December 29, 2024 and sell it today you would earn a total of  33.00  from holding Western Asset Mortgage or generate 2.88% return on investment over 90 days.

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

Optimum Small Mid Cap  vs.  Western Asset Mortgage

Optimum Small Mid

Risk-Adjusted Performance

Very Weak

Over the last 90 days Optimum Small Mid Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest fragile performance, the Fund's technical and fundamental 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 Mortgage

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Western Asset Mortgage are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of very healthy primary 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 Optimum Small and Western Asset

The main advantage of trading using opposite Optimum Small and Western Asset positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Optimum 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 Optimum Small Mid Cap and Western Asset Mortgage 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.