Correlation Between Small Company and Western Asset
Can any of the company-specific risk be diversified away by investing in both Small Company 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 Company 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 Pany Value and Western Asset High, you can compare the effects of market volatilities on Small Company 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 Company with a short position of Western Asset. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Company and Western Asset.
Diversification Opportunities for Small Company and Western Asset
0.5 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Small and Western is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Small Pany Value and Western Asset High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Asset High and Small Company 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 Pany Value 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 High has no effect on the direction of Small Company i.e., Small Company and Western Asset go up and down completely randomly.
Pair Corralation between Small Company and Western Asset
Assuming the 90 days horizon Small Pany Value is expected to generate 4.13 times more return on investment than Western Asset. However, Small Company is 4.13 times more volatile than Western Asset High. It trades about 0.07 of its potential returns per unit of risk. Western Asset High is currently generating about 0.15 per unit of risk. If you would invest 2,700 in Small Pany Value on September 2, 2024 and sell it today you would earn a total of 914.00 from holding Small Pany Value or generate 33.85% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Pany Value vs. Western Asset High
Performance |
| Timeline |
| Small Pany Value |
| Western Asset High |
Small Company and Western Asset Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Company and Western Asset
The main advantage of trading using opposite Small Company and Western Asset positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Company 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 Company vs. Aqr Large Cap | Small Company vs. Victory Strategic Allocation | Small Company vs. Tax Managed Large Cap | Small Company vs. Principal Lifetime Hybrid |
| 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.
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