Correlation Between Western Asset and Cross Timbers

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

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

Diversification Opportunities for Western Asset and Cross Timbers

-0.49

Correlation Coefficient

Western Asset  Cross Timbers

Very good diversification

The 3 months correlation between Western and Cross is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset Mortgage and Cross Timbers Royalty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cross Timbers Royalty 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 Mortgage are associated (or correlated) with Cross Timbers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cross Timbers Royalty has no effect on the direction of Western Asset i.e., Western Asset and Cross Timbers go up and down completely randomly.

Pair Corralation between Western Asset and Cross Timbers

If you would invest  957.00  in Western Asset Mortgage on September 27, 2024 and sell it today you would earn a total of  0.00  from holding Western Asset Mortgage or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	4.55%
Values	Daily Returns

Western Asset Mortgage  vs.  Cross Timbers Royalty

Western Asset Mortgage

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Western Asset Mortgage has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound primary indicators, Western Asset is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Cross Timbers Royalty

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cross Timbers Royalty has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Cross Timbers is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Western Asset and Cross Timbers

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

The idea behind Western Asset Mortgage and Cross Timbers Royalty 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.