Correlation Between Western Asset and Clearbridge Value

Can any of the company-specific risk be diversified away by investing in both Western Asset and Clearbridge Value 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 Clearbridge Value 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 Clearbridge Value Trust, you can compare the effects of market volatilities on Western Asset and Clearbridge Value 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 Clearbridge Value. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Asset and Clearbridge Value.

Diversification Opportunities for Western Asset and Clearbridge Value

0.8

Correlation Coefficient

Western Asset  Clearbridge Value

Very poor diversification

The 3 months correlation between Western and Clearbridge is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset Smash and Clearbridge Value Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Clearbridge Value Trust 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 Clearbridge Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Clearbridge Value Trust has no effect on the direction of Western Asset i.e., Western Asset and Clearbridge Value go up and down completely randomly.

Pair Corralation between Western Asset and Clearbridge Value

Assuming the 90 days horizon Western Asset is expected to generate 17.77 times less return on investment than Clearbridge Value. But when comparing it to its historical volatility, Western Asset Smash is 4.36 times less risky than Clearbridge Value. It trades about 0.06 of its potential returns per unit of risk. Clearbridge Value Trust is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  9,973  in Clearbridge Value Trust on September 2, 2024 and sell it today you would earn a total of  1,230  from holding Clearbridge Value Trust or generate 12.33% return on investment over 90 days.

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

Western Asset Smash  vs.  Clearbridge Value Trust

Western Asset Smash

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Western Asset Smash are ranked lower than 4 (%) 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.

Clearbridge Value Trust

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Clearbridge Value Trust are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Clearbridge Value may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Western Asset and Clearbridge Value

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

The idea behind Western Asset Smash and Clearbridge Value Trust 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.

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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.