Correlation Between Fundamental Large and Western Asset

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

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

Diversification Opportunities for Fundamental Large and Western Asset

-0.47

Correlation Coefficient

Fundamental Large  Western Asset

Very good diversification

The 3 months correlation between Fundamental and Western is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Fundamental Large Cap and Western Asset Intermediate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Asset Interm and Fundamental Large 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 Fundamental Large Cap 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 Interm has no effect on the direction of Fundamental Large i.e., Fundamental Large and Western Asset go up and down completely randomly.

Pair Corralation between Fundamental Large and Western Asset

Assuming the 90 days horizon Fundamental Large Cap is expected to under-perform the Western Asset. In addition to that, Fundamental Large is 4.94 times more volatile than Western Asset Intermediate. It trades about -0.09 of its total potential returns per unit of risk. Western Asset Intermediate is currently generating about 0.18 per unit of volatility. If you would invest  952.00  in Western Asset Intermediate on December 22, 2024 and sell it today you would earn a total of  21.00  from holding Western Asset Intermediate or generate 2.21% return on investment over 90 days.

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

Fundamental Large Cap  vs.  Western Asset Intermediate

Fundamental Large Cap

Risk-Adjusted Performance

Very Weak

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

Western Asset Interm

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Western Asset Intermediate are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental 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 Fundamental Large and Western Asset

The main advantage of trading using opposite Fundamental Large and Western Asset positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fundamental Large 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 Fundamental Large Cap and Western Asset Intermediate 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.