Correlation Between Western Asset and Wilmington Diversified

Can any of the company-specific risk be diversified away by investing in both Western Asset and Wilmington Diversified 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 Wilmington Diversified 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 Wilmington Diversified Income, you can compare the effects of market volatilities on Western Asset and Wilmington Diversified 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 Wilmington Diversified. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Asset and Wilmington Diversified.

Diversification Opportunities for Western Asset and Wilmington Diversified

0.24

Correlation Coefficient

Western Asset  Wilmington Diversified

Modest diversification

The 3 months correlation between Western and Wilmington is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset Diversified and Wilmington Diversified Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wilmington Diversified 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 Wilmington Diversified. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wilmington Diversified has no effect on the direction of Western Asset i.e., Western Asset and Wilmington Diversified go up and down completely randomly.

Pair Corralation between Western Asset and Wilmington Diversified

Assuming the 90 days horizon Western Asset is expected to generate 1.13 times less return on investment than Wilmington Diversified. But when comparing it to its historical volatility, Western Asset Diversified is 3.29 times less risky than Wilmington Diversified. It trades about 0.07 of its potential returns per unit of risk. Wilmington Diversified Income is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,338  in Wilmington Diversified Income on December 25, 2024 and sell it today you would earn a total of  13.00  from holding Wilmington Diversified Income or generate 0.97% return on investment over 90 days.

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

Western Asset Diversified  vs.  Wilmington Diversified Income

Western Asset Diversified

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Western Asset Diversified are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. 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.

Wilmington Diversified

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Wilmington Diversified Income are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Wilmington Diversified 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 Wilmington Diversified

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

The idea behind Western Asset Diversified and Wilmington Diversified Income 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..