Correlation Between Western Asset and Vela Small

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

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

Diversification Opportunities for Western Asset and Vela Small

-0.5

Correlation Coefficient

Western Asset  Vela Small

Very good diversification

The 3 months correlation between Western and Vela is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset Inflation and Vela Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vela Small Cap 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 Inflation are associated (or correlated) with Vela Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vela Small Cap has no effect on the direction of Western Asset i.e., Western Asset and Vela Small go up and down completely randomly.

Pair Corralation between Western Asset and Vela Small

Assuming the 90 days horizon Western Asset Inflation is expected to under-perform the Vela Small. But the mutual fund apears to be less risky and, when comparing its historical volatility, Western Asset Inflation is 2.89 times less risky than Vela Small. The mutual fund trades about -0.14 of its potential returns per unit of risk. The Vela Small Cap is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,899  in Vela Small Cap on September 14, 2024 and sell it today you would earn a total of  109.00  from holding Vela Small Cap or generate 5.74% return on investment over 90 days.

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

Western Asset Inflation  vs.  Vela Small Cap

Western Asset Inflation

Risk-Adjusted Performance

0 of 100

Very Weak

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

Vela Small Cap

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vela Small Cap are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Vela Small is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Western Asset and Vela Small

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

The idea behind Western Asset Inflation and Vela Small Cap 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.