Correlation Between Optimum Large and Western Asset

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

Diversification Opportunities for Optimum Large and Western Asset

0.81

Correlation Coefficient

Optimum Large  Western Asset

Very poor diversification

The 3 months correlation between Optimum and Western is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Optimum Large 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 Large 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 Large 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 Large i.e., Optimum Large and Western Asset go up and down completely randomly.

Pair Corralation between Optimum Large and Western Asset

Assuming the 90 days horizon Optimum Large Cap is expected to generate 2.08 times more return on investment than Western Asset. However, Optimum Large is 2.08 times more volatile than Western Asset Mortgage. It trades about 0.2 of its potential returns per unit of risk. Western Asset Mortgage is currently generating about 0.1 per unit of risk. If you would invest  2,351  in Optimum Large Cap on September 4, 2024 and sell it today you would earn a total of  311.00  from holding Optimum Large Cap or generate 13.23% return on investment over 90 days.

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

Optimum Large Cap  vs.  Western Asset Mortgage

Optimum Large Cap

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Optimum Large Cap are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Optimum Large may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Western Asset Mortgage

Risk-Adjusted Performance

7 of 100

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 Large and Western Asset

The main advantage of trading using opposite Optimum Large and Western Asset positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Optimum Large 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 Large 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.

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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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.