Correlation Between Orchid Island and Western Asset

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

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

Diversification Opportunities for Orchid Island and Western Asset

0.79

Correlation Coefficient

Orchid Island  Western Asset

Poor diversification

The 3 months correlation between Orchid and Western is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Orchid Island Capital and Western Asset Managed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Asset Managed and Orchid Island 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 Orchid Island Capital 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 Managed has no effect on the direction of Orchid Island i.e., Orchid Island and Western Asset go up and down completely randomly.

Pair Corralation between Orchid Island and Western Asset

Considering the 90-day investment horizon Orchid Island Capital is expected to generate 2.29 times more return on investment than Western Asset. However, Orchid Island is 2.29 times more volatile than Western Asset Managed. It trades about 0.12 of its potential returns per unit of risk. Western Asset Managed is currently generating about 0.12 per unit of risk. If you would invest  751.00  in Orchid Island Capital on December 25, 2024 and sell it today you would earn a total of  71.00  from holding Orchid Island Capital or generate 9.45% return on investment over 90 days.

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

Orchid Island Capital  vs.  Western Asset Managed

Orchid Island Capital

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Orchid Island Capital are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Orchid Island may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Western Asset Managed

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Western Asset Managed are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of comparatively stable primary indicators, Western Asset is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Orchid Island and Western Asset

The main advantage of trading using opposite Orchid Island and Western Asset positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Orchid Island 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 Orchid Island Capital and Western Asset Managed 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.