Correlation Between Western Asset and Kensington Active

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

By analyzing existing cross correlation between Western Asset High and Kensington Active Advantage, you can compare the effects of market volatilities on Western Asset and Kensington Active 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 Kensington Active. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Asset and Kensington Active.

Diversification Opportunities for Western Asset and Kensington Active

0.71

Correlation Coefficient

Western Asset  Kensington Active

Poor diversification

The 3 months correlation between Western and Kensington is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset High and Kensington Active Advantage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kensington Active 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 High are associated (or correlated) with Kensington Active. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kensington Active has no effect on the direction of Western Asset i.e., Western Asset and Kensington Active go up and down completely randomly.

Pair Corralation between Western Asset and Kensington Active

Assuming the 90 days horizon Western Asset High is expected to generate 0.39 times more return on investment than Kensington Active. However, Western Asset High is 2.56 times less risky than Kensington Active. It trades about 0.16 of its potential returns per unit of risk. Kensington Active Advantage is currently generating about 0.04 per unit of risk. If you would invest  679.00  in Western Asset High on September 21, 2024 and sell it today you would earn a total of  24.00  from holding Western Asset High or generate 3.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.07%
Values	Daily Returns

Western Asset High  vs.  Kensington Active Advantage

Western Asset High

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Western Asset High are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. 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.

Kensington Active

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Kensington Active Advantage are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Kensington Active 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 Kensington Active

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

The idea behind Western Asset High and Kensington Active Advantage 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.