Correlation Between Western Asset and Hood River

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

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

Diversification Opportunities for Western Asset and Hood River

-0.67

Correlation Coefficient

Western Asset  Hood River

Excellent diversification

The 3 months correlation between Western and Hood is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset Diversified and Hood River Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hood River 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 Diversified are associated (or correlated) with Hood River. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hood River Small has no effect on the direction of Western Asset i.e., Western Asset and Hood River go up and down completely randomly.

Pair Corralation between Western Asset and Hood River

Assuming the 90 days horizon Western Asset Diversified is expected to under-perform the Hood River. But the mutual fund apears to be less risky and, when comparing its historical volatility, Western Asset Diversified is 5.55 times less risky than Hood River. The mutual fund trades about -0.11 of its potential returns per unit of risk. The Hood River Small Cap is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  7,203  in Hood River Small Cap on September 14, 2024 and sell it today you would earn a total of  706.00  from holding Hood River Small Cap or generate 9.8% return on investment over 90 days.

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

Western Asset Diversified  vs.  Hood River Small Cap

Western Asset Diversified

Risk-Adjusted Performance

0 of 100

Very Weak

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

Hood River Small

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hood River Small Cap are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Hood River may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Western Asset and Hood River

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

The idea behind Western Asset Diversified and Hood River Small 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.