Correlation Between Western Asset and Sit Large

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

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

Diversification Opportunities for Western Asset and Sit Large

-0.54

Correlation Coefficient

Western Asset  Sit Large

Excellent diversification

The 3 months correlation between Western and Sit is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset Municipal and Sit Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sit Large Cap 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 Municipal are associated (or correlated) with Sit Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sit Large Cap has no effect on the direction of Western Asset i.e., Western Asset and Sit Large go up and down completely randomly.

Pair Corralation between Western Asset and Sit Large

Assuming the 90 days horizon Western Asset is expected to generate 1.68 times less return on investment than Sit Large. But when comparing it to its historical volatility, Western Asset Municipal is 3.55 times less risky than Sit Large. It trades about 0.19 of its potential returns per unit of risk. Sit Large Cap is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  7,977  in Sit Large Cap on September 12, 2024 and sell it today you would earn a total of  107.00  from holding Sit Large Cap or generate 1.34% 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 Municipal  vs.  Sit Large Cap

Western Asset Municipal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Western Asset Municipal has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and 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.

Sit Large Cap

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sit Large Cap are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Sit Large may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Western Asset and Sit Large

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

The idea behind Western Asset Municipal and Sit Large Cap 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.