Correlation Between Western Asset and Invesco European

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

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

Diversification Opportunities for Western Asset and Invesco European

-0.49

Correlation Coefficient

Western Asset  Invesco European

Very good diversification

The 3 months correlation between Western and Invesco is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset High and Invesco European Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco European Small and Western Asset 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 Western Asset High are associated (or correlated) with Invesco European. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco European Small has no effect on the direction of Western Asset i.e., Western Asset and Invesco European go up and down completely randomly.

Pair Corralation between Western Asset and Invesco European

Assuming the 90 days horizon Western Asset High is expected to generate 0.23 times more return on investment than Invesco European. However, Western Asset High is 4.44 times less risky than Invesco European. It trades about 0.11 of its potential returns per unit of risk. Invesco European Small is currently generating about -0.09 per unit of risk. If you would invest  700.00  in Western Asset High on September 14, 2024 and sell it today you would earn a total of  8.00  from holding Western Asset High or generate 1.14% return on investment over 90 days.

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

Western Asset High  vs.  Invesco European Small

Western Asset High

Risk-Adjusted Performance

8 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Western Asset High are ranked lower than 8 (%) 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.

Invesco European Small

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Western Asset and Invesco European

The main advantage of trading using opposite Western Asset and Invesco European positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Asset position performs unexpectedly, Invesco European 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 Invesco European will offset losses from the drop in Invesco European's long position.

The idea behind Western Asset High and Invesco European Small 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..