Correlation Between ClearBridge Sustainable and FlexShares STOXX
Can any of the company-specific risk be diversified away by investing in both ClearBridge Sustainable and FlexShares STOXX 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 ClearBridge Sustainable and FlexShares STOXX into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ClearBridge Sustainable Infrastructure and FlexShares STOXX Global, you can compare the effects of market volatilities on ClearBridge Sustainable and FlexShares STOXX 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 ClearBridge Sustainable with a short position of FlexShares STOXX. Check out your portfolio center. Please also check ongoing floating volatility patterns of ClearBridge Sustainable and FlexShares STOXX.
Diversification Opportunities for ClearBridge Sustainable and FlexShares STOXX
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between ClearBridge and FlexShares is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding ClearBridge Sustainable Infras and FlexShares STOXX Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares STOXX Global and ClearBridge Sustainable 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 ClearBridge Sustainable Infrastructure are associated (or correlated) with FlexShares STOXX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares STOXX Global has no effect on the direction of ClearBridge Sustainable i.e., ClearBridge Sustainable and FlexShares STOXX go up and down completely randomly.
Pair Corralation between ClearBridge Sustainable and FlexShares STOXX
Given the investment horizon of 90 days ClearBridge Sustainable Infrastructure is expected to under-perform the FlexShares STOXX. In addition to that, ClearBridge Sustainable is 1.41 times more volatile than FlexShares STOXX Global. It trades about -0.01 of its total potential returns per unit of risk. FlexShares STOXX Global is currently generating about 0.07 per unit of volatility. If you would invest 5,275 in FlexShares STOXX Global on November 28, 2024 and sell it today you would earn a total of 412.00 from holding FlexShares STOXX Global or generate 7.81% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
ClearBridge Sustainable Infras vs. FlexShares STOXX Global
Performance |
| Timeline |
| ClearBridge Sustainable |
| FlexShares STOXX Global |
ClearBridge Sustainable and FlexShares STOXX Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ClearBridge Sustainable and FlexShares STOXX
The main advantage of trading using opposite ClearBridge Sustainable and FlexShares STOXX positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ClearBridge Sustainable position performs unexpectedly, FlexShares STOXX 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 FlexShares STOXX will offset losses from the drop in FlexShares STOXX's long position.The idea behind ClearBridge Sustainable Infrastructure and FlexShares STOXX Global 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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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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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