Correlation Between MicroSectors FANG and Western Asset

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

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

Diversification Opportunities for MicroSectors FANG and Western Asset

-0.39

Correlation Coefficient

MicroSectors FANG  Western Asset

Very good diversification

The 3 months correlation between MicroSectors and Western is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors FANG Index and Western Asset High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Asset High and MicroSectors FANG 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 MicroSectors FANG Index are associated (or correlated) with Western Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Asset High has no effect on the direction of MicroSectors FANG i.e., MicroSectors FANG and Western Asset go up and down completely randomly.

Pair Corralation between MicroSectors FANG and Western Asset

Given the investment horizon of 90 days MicroSectors FANG Index is expected to generate 5.46 times more return on investment than Western Asset. However, MicroSectors FANG is 5.46 times more volatile than Western Asset High. It trades about 0.18 of its potential returns per unit of risk. Western Asset High is currently generating about -0.2 per unit of risk. If you would invest  3,590  in MicroSectors FANG Index on January 20, 2024 and sell it today you would earn a total of  452.00  from holding MicroSectors FANG Index or generate 12.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.65%
Values	Daily Returns

MicroSectors FANG Index  vs.  Western Asset High

MicroSectors FANG Index

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MicroSectors FANG Index has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Etf's technical and fundamental indicators remain rather sound which may send shares a bit higher in May 2024. The latest tumult may also be a sign of longer-term up-swing for the fund shareholders.

Western Asset High

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Western Asset High has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Western Asset is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with MicroSectors FANG and Western Asset

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

The idea behind MicroSectors FANG Index and Western Asset High 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.