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 Short Term, 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
-0.37 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Small and Western is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Equity and Western Asset Short Term in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Asset Short 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 Short 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 10.39 times more return on investment than Western Asset. However, Small Cap is 10.39 times more volatile than Western Asset Short Term. It trades about 0.21 of its potential returns per unit of risk. Western Asset Short Term is currently generating about 0.0 per unit of risk. If you would invest 1,850 in Small Cap Equity on August 24, 2024 and sell it today you would earn a total of 132.00 from holding Small Cap Equity or generate 7.14% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 95.65% |
| Values | Daily Returns |
Small Cap Equity vs. Western Asset Short Term
Performance |
| Timeline |
| Small Cap Equity |
| Western Asset Short |
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. Vanguard Small Cap Index | Small Cap vs. Vanguard Small Cap Index | Small Cap vs. Vanguard Small Cap Index | Small Cap vs. Fidelity Small Cap |
| Western Asset vs. Balanced Fund Retail | Western Asset vs. Touchstone International Equity | Western Asset vs. Small Cap Equity | Western Asset vs. Us Vector Equity |
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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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