Correlation Between Small Cap and Western Asset
Can any of the company-specific risk be diversified away by investing in both Small Cap 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 Small Cap and Western Asset into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Small Cap Equity and Western Asset Mortgage, you can compare the effects of market volatilities on Small Cap 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 Small Cap with a short position of Western Asset. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Western Asset.
Diversification Opportunities for Small Cap and Western Asset
-0.6 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Small and Western is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Equity and Western Asset Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Asset Mortgage and Small Cap 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 Small Cap Equity 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 Mortgage has no effect on the direction of Small Cap i.e., Small Cap and Western Asset go up and down completely randomly.
Pair Corralation between Small Cap and Western Asset
Assuming the 90 days horizon Small Cap Equity is expected to generate 3.03 times more return on investment than Western Asset. However, Small Cap is 3.03 times more volatile than Western Asset Mortgage. It trades about 0.09 of its potential returns per unit of risk. Western Asset Mortgage is currently generating about 0.08 per unit of risk. If you would invest 1,599 in Small Cap Equity on September 4, 2024 and sell it today you would earn a total of 440.00 from holding Small Cap Equity or generate 27.52% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Cap Equity vs. Western Asset Mortgage
Performance |
| Timeline |
| Small Cap Equity |
| Western Asset Mortgage |
Small Cap and Western Asset Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Western Asset
The main advantage of trading using opposite Small Cap and Western Asset positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap 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.| Small Cap vs. Firsthand Alternative Energy | Small Cap vs. Salient Mlp Energy | Small Cap vs. Tortoise Energy Independence | Small Cap vs. Goehring Rozencwajg Resources |
| Western Asset vs. Clearbridge Aggressive Growth | Western Asset vs. Clearbridge Small Cap | Western Asset vs. Qs International Equity | Western Asset vs. Clearbridge Appreciation Fund |
Check out your portfolio center.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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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