Correlation Between Western Asset and Old Westbury

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

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

Diversification Opportunities for Western Asset and Old Westbury

-0.45

Correlation Coefficient

Western Asset  Old Westbury

Very good diversification

The 3 months correlation between Western and Old is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset Municipal and Old Westbury Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Old Westbury Small 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 Municipal are associated (or correlated) with Old Westbury. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Old Westbury Small has no effect on the direction of Western Asset i.e., Western Asset and Old Westbury go up and down completely randomly.

Pair Corralation between Western Asset and Old Westbury

Assuming the 90 days horizon Western Asset is expected to generate 18.57 times less return on investment than Old Westbury. But when comparing it to its historical volatility, Western Asset Municipal is 3.2 times less risky than Old Westbury. It trades about 0.02 of its potential returns per unit of risk. Old Westbury Small is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,455  in Old Westbury Small on September 4, 2024 and sell it today you would earn a total of  295.00  from holding Old Westbury Small or generate 20.27% 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 Municipal  vs.  Old Westbury Small

Western Asset Municipal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Western Asset Municipal has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and 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.

Old Westbury Small

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Old Westbury Small are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak primary indicators, Old Westbury may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Western Asset and Old Westbury

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

The idea behind Western Asset Municipal and Old Westbury Small 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.