Correlation Between SPDR Portfolio and Western Asset

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

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

Diversification Opportunities for SPDR Portfolio and Western Asset

0.72

Correlation Coefficient

SPDR Portfolio  Western Asset

Poor diversification

The 3 months correlation between SPDR and Western is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Portfolio Emerging 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 SPDR Portfolio 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 SPDR Portfolio Emerging 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 SPDR Portfolio i.e., SPDR Portfolio and Western Asset go up and down completely randomly.

Pair Corralation between SPDR Portfolio and Western Asset

Given the investment horizon of 90 days SPDR Portfolio Emerging is expected to under-perform the Western Asset. In addition to that, SPDR Portfolio is 1.29 times more volatile than Western Asset High. It trades about -0.1 of its total potential returns per unit of risk. Western Asset High is currently generating about -0.04 per unit of volatility. If you would invest  1,222  in Western Asset High on September 2, 2024 and sell it today you would lose (8.00) from holding Western Asset High or give up 0.65% of portfolio value over 90 days.

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

SPDR Portfolio Emerging  vs.  Western Asset High

SPDR Portfolio Emerging

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Portfolio Emerging are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, SPDR Portfolio is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Western Asset High

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Western Asset High are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Western Asset is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with SPDR Portfolio and Western Asset

The main advantage of trading using opposite SPDR Portfolio and Western Asset positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR Portfolio 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 SPDR Portfolio Emerging 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.