Correlation Between Mid Cap and Western Asset

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

By analyzing existing cross correlation between Mid Cap 15x Strategy and Western Asset High, you can compare the effects of market volatilities on Mid Cap 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 Mid Cap with a short position of Western Asset. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mid Cap and Western Asset.

Diversification Opportunities for Mid Cap and Western Asset

0.78

Correlation Coefficient

Mid Cap  Western Asset

Poor diversification

The 3 months correlation between Mid and Western is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Mid Cap 15x Strategy and Western Asset High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Asset High and Mid Cap 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 Mid Cap 15x Strategy 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 High has no effect on the direction of Mid Cap i.e., Mid Cap and Western Asset go up and down completely randomly.

Pair Corralation between Mid Cap and Western Asset

Assuming the 90 days horizon Mid Cap 15x Strategy is expected to generate 8.24 times more return on investment than Western Asset. However, Mid Cap is 8.24 times more volatile than Western Asset High. It trades about 0.1 of its potential returns per unit of risk. Western Asset High is currently generating about 0.05 per unit of risk. If you would invest  13,035  in Mid Cap 15x Strategy on September 17, 2024 and sell it today you would earn a total of  1,143  from holding Mid Cap 15x Strategy or generate 8.77% return on investment over 90 days.

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

Mid Cap 15x Strategy  vs.  Western Asset High

Mid Cap 15x

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Mid Cap 15x Strategy are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical indicators, Mid Cap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Western Asset High

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Western Asset High are ranked lower than 4 (%) 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 Mid Cap and Western Asset

The main advantage of trading using opposite Mid Cap and Western Asset positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mid Cap 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 Mid Cap 15x Strategy and Western Asset High 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 CEOs Directory module to screen CEOs from public companies around the world.