Correlation Between Western Asset and Red Oak

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

Diversification Opportunities for Western Asset and Red Oak

-0.43

Correlation Coefficient

Western Asset  Red Oak

Very good diversification

The 3 months correlation between Western and Red is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset Municipal and Red Oak Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Red Oak Technology 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 Red Oak. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Red Oak Technology has no effect on the direction of Western Asset i.e., Western Asset and Red Oak go up and down completely randomly.

Pair Corralation between Western Asset and Red Oak

Assuming the 90 days horizon Western Asset Municipal is expected to under-perform the Red Oak. But the mutual fund apears to be less risky and, when comparing its historical volatility, Western Asset Municipal is 5.19 times less risky than Red Oak. The mutual fund trades about 0.0 of its potential returns per unit of risk. The Red Oak Technology is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  3,928  in Red Oak Technology on September 13, 2024 and sell it today you would earn a total of  1,112  from holding Red Oak Technology or generate 28.31% 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.  Red Oak Technology

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.

Red Oak Technology

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Red Oak Technology are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Red Oak may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Western Asset and Red Oak

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

The idea behind Western Asset Municipal and Red Oak Technology 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.