Correlation Between Clearbridge Large and Western Asset

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

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

Diversification Opportunities for Clearbridge Large and Western Asset

0.75

Correlation Coefficient

Clearbridge Large  Western Asset

Poor diversification

The 3 months correlation between Clearbridge and Western is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Clearbridge Large Cap and Western Asset Smash in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Asset Smash and Clearbridge Large 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 Large Cap 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 Smash has no effect on the direction of Clearbridge Large i.e., Clearbridge Large and Western Asset go up and down completely randomly.

Pair Corralation between Clearbridge Large and Western Asset

Assuming the 90 days horizon Clearbridge Large Cap is expected to generate 4.03 times more return on investment than Western Asset. However, Clearbridge Large is 4.03 times more volatile than Western Asset Smash. It trades about 0.15 of its potential returns per unit of risk. Western Asset Smash is currently generating about 0.09 per unit of risk. If you would invest  4,374  in Clearbridge Large Cap on August 30, 2024 and sell it today you would earn a total of  310.00  from holding Clearbridge Large Cap or generate 7.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Clearbridge Large Cap  vs.  Western Asset Smash

Clearbridge Large Cap

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Clearbridge Large Cap are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Clearbridge Large may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Western Asset Smash

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Western Asset Smash are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Western Asset is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Clearbridge Large and Western Asset

The main advantage of trading using opposite Clearbridge Large and Western Asset positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Clearbridge Large 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.

The idea behind Clearbridge Large Cap and Western Asset Smash 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.