Correlation Between Midcap Fund and Western Asset

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

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

Diversification Opportunities for Midcap Fund and Western Asset

-0.02

Correlation Coefficient

Midcap Fund  Western Asset

Good diversification

The 3 months correlation between Midcap and Western is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Midcap Fund Institutional and Western Asset E in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Asset E and Midcap Fund 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 Midcap Fund Institutional 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 E has no effect on the direction of Midcap Fund i.e., Midcap Fund and Western Asset go up and down completely randomly.

Pair Corralation between Midcap Fund and Western Asset

Assuming the 90 days horizon Midcap Fund Institutional is expected to under-perform the Western Asset. In addition to that, Midcap Fund is 3.24 times more volatile than Western Asset E. It trades about -0.05 of its total potential returns per unit of risk. Western Asset E is currently generating about 0.18 per unit of volatility. If you would invest  895.00  in Western Asset E on December 22, 2024 and sell it today you would earn a total of  30.00  from holding Western Asset E or generate 3.35% return on investment over 90 days.

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

Midcap Fund Institutional  vs.  Western Asset E

Midcap Fund Institutional

Risk-Adjusted Performance

Very Weak

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

Western Asset E

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Western Asset E are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. 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 Midcap Fund and Western Asset

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