Correlation Between Western Asset and Gmo Asset

Can any of the company-specific risk be diversified away by investing in both Western Asset and Gmo 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 Western Asset and Gmo Asset into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Western Asset Smash and Gmo Asset Allocation, you can compare the effects of market volatilities on Western Asset and Gmo 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 Western Asset with a short position of Gmo Asset. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Asset and Gmo Asset.

Diversification Opportunities for Western Asset and Gmo Asset

0.99

Correlation Coefficient

Western Asset  Gmo Asset

No risk reduction

The 3 months correlation between Western and Gmo is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset Smash and Gmo Asset Allocation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gmo Asset Allocation and Western Asset 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 Asset Smash are associated (or correlated) with Gmo Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gmo Asset Allocation has no effect on the direction of Western Asset i.e., Western Asset and Gmo Asset go up and down completely randomly.

Pair Corralation between Western Asset and Gmo Asset

Assuming the 90 days horizon Western Asset Smash is expected to generate 0.56 times more return on investment than Gmo Asset. However, Western Asset Smash is 1.78 times less risky than Gmo Asset. It trades about -0.13 of its potential returns per unit of risk. Gmo Asset Allocation is currently generating about -0.12 per unit of risk. If you would invest  796.00  in Western Asset Smash on August 31, 2024 and sell it today you would lose (34.00) from holding Western Asset Smash or give up 4.27% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Western Asset Smash  vs.  Gmo Asset Allocation

Western Asset Smash

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Western Asset Smash has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong primary indicators, Western Asset is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Gmo Asset Allocation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gmo Asset Allocation has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Western Asset and Gmo Asset

The main advantage of trading using opposite Western Asset and Gmo Asset positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Asset position performs unexpectedly, Gmo 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 Gmo Asset will offset losses from the drop in Gmo Asset's long position.

The idea behind Western Asset Smash and Gmo Asset Allocation 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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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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.