Correlation Between Western Assets and Northern Small
Can any of the company-specific risk be diversified away by investing in both Western Assets and Northern Small 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 Northern Small 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 Northern Small Cap, you can compare the effects of market volatilities on Western Assets and Northern Small 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 Northern Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Assets and Northern Small.
Diversification Opportunities for Western Assets and Northern Small
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Western and Northern is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Western Assets Emerging and Northern Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Small Cap 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 Northern Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Small Cap has no effect on the direction of Western Assets i.e., Western Assets and Northern Small go up and down completely randomly.
Pair Corralation between Western Assets and Northern Small
Assuming the 90 days horizon Western Assets Emerging is expected to generate 0.23 times more return on investment than Northern Small. However, Western Assets Emerging is 4.26 times less risky than Northern Small. It trades about -0.09 of its potential returns per unit of risk. Northern Small Cap is currently generating about -0.2 per unit of risk. If you would invest 1,079 in Western Assets Emerging on October 30, 2024 and sell it today you would lose (13.00) from holding Western Assets Emerging or give up 1.2% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Western Assets Emerging vs. Northern Small Cap
Performance |
| Timeline |
| Western Assets Emerging |
| Northern Small Cap |
Western Assets and Northern Small Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Western Assets and Northern Small
The main advantage of trading using opposite Western Assets and Northern Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Assets position performs unexpectedly, Northern Small 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 Northern Small will offset losses from the drop in Northern Small's long position.| Western Assets vs. Transamerica Intermediate Muni | Western Assets vs. Intermediate Term Tax Free Bond | Western Assets vs. Nuveen Strategic Municipal | Western Assets vs. Ab Municipal Bond |
| Northern Small vs. Dreyfus Government Cash | Northern Small vs. Davis Government Bond | Northern Small vs. Intermediate Government Bond | Northern Small vs. Lord Abbett Government |
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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
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