Correlation Between Sp Smallcap and Western Asset

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

By analyzing existing cross correlation between Sp Smallcap 600 and Western Asset Inflation, you can compare the effects of market volatilities on Sp Smallcap 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 Sp Smallcap with a short position of Western Asset. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sp Smallcap and Western Asset.

Diversification Opportunities for Sp Smallcap and Western Asset

-0.03

Correlation Coefficient

Sp Smallcap  Western Asset

Good diversification

The 3 months correlation between RYSVX and Western is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Sp Smallcap 600 and Western Asset Inflation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Asset Inflation and Sp Smallcap 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 Sp Smallcap 600 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 Inflation has no effect on the direction of Sp Smallcap i.e., Sp Smallcap and Western Asset go up and down completely randomly.

Pair Corralation between Sp Smallcap and Western Asset

Assuming the 90 days horizon Sp Smallcap 600 is expected to generate 4.22 times more return on investment than Western Asset. However, Sp Smallcap is 4.22 times more volatile than Western Asset Inflation. It trades about 0.04 of its potential returns per unit of risk. Western Asset Inflation is currently generating about 0.08 per unit of risk. If you would invest  16,303  in Sp Smallcap 600 on December 3, 2024 and sell it today you would earn a total of  2,385  from holding Sp Smallcap 600 or generate 14.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.7%
Values	Daily Returns

Sp Smallcap 600  vs.  Western Asset Inflation

Sp Smallcap 600

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sp Smallcap 600 has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Western Asset Inflation

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Western Asset Inflation are ranked lower than 7 (%) 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 Sp Smallcap and Western Asset

The main advantage of trading using opposite Sp Smallcap and Western Asset positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sp Smallcap 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 Sp Smallcap 600 and Western Asset Inflation 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.