Correlation Between Western Assets and Large Cap
Can any of the company-specific risk be diversified away by investing in both Western Assets and Large Cap 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 Assets and Large Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Western Assets Emerging and Large Cap E, you can compare the effects of market volatilities on Western Assets and Large Cap 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 Assets with a short position of Large Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Assets and Large Cap.
Diversification Opportunities for Western Assets and Large Cap
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Western and Large is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Western Assets Emerging and Large Cap E in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Large Cap E and Western Assets 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 Assets Emerging are associated (or correlated) with Large Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Large Cap E has no effect on the direction of Western Assets i.e., Western Assets and Large Cap go up and down completely randomly.
Pair Corralation between Western Assets and Large Cap
Assuming the 90 days horizon Western Assets is expected to generate 2.76 times less return on investment than Large Cap. But when comparing it to its historical volatility, Western Assets Emerging is 2.65 times less risky than Large Cap. It trades about 0.17 of its potential returns per unit of risk. Large Cap E is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest 2,055 in Large Cap E on October 24, 2024 and sell it today you would earn a total of 48.00 from holding Large Cap E or generate 2.34% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Western Assets Emerging vs. Large Cap E
Performance |
| Timeline |
| Western Assets Emerging |
| Large Cap E |
Western Assets and Large Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Western Assets and Large Cap
The main advantage of trading using opposite Western Assets and Large Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Assets position performs unexpectedly, Large Cap 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 Large Cap will offset losses from the drop in Large Cap's long position.| Western Assets vs. Georgia Tax Free Bond | Western Assets vs. California Bond Fund | Western Assets vs. Nuveen High Yield | Western Assets vs. Leader Short Term Bond |
| Large Cap vs. Catalystmillburn Hedge Strategy | Large Cap vs. Western Assets Emerging | Large Cap vs. Eagle Mlp Strategy | Large Cap vs. Wcm Focused Emerging |
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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.
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