Correlation Between Scharf Fund and Western Asset

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

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

Diversification Opportunities for Scharf Fund and Western Asset

0.86

Correlation Coefficient

Scharf Fund  Western Asset

Very poor diversification

The 3 months correlation between Scharf and Western is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Scharf Fund Institutional and Western Asset New in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Asset New and Scharf Fund 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 Scharf Fund Institutional 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 New has no effect on the direction of Scharf Fund i.e., Scharf Fund and Western Asset go up and down completely randomly.

Pair Corralation between Scharf Fund and Western Asset

Assuming the 90 days horizon Scharf Fund Institutional is expected to under-perform the Western Asset. In addition to that, Scharf Fund is 2.41 times more volatile than Western Asset New. It trades about -0.05 of its total potential returns per unit of risk. Western Asset New is currently generating about -0.06 per unit of volatility. If you would invest  1,151  in Western Asset New on January 28, 2025 and sell it today you would lose (23.00) from holding Western Asset New or give up 2.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

Scharf Fund Institutional  vs.  Western Asset New

Scharf Fund Institutional

Risk-Adjusted Performance

Very Weak

Over the last 90 days Scharf Fund Institutional has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Scharf Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Western Asset New

Risk-Adjusted Performance

Very Weak

Over the last 90 days Western Asset New has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong essential indicators, Western Asset is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Scharf Fund and Western Asset

The main advantage of trading using opposite Scharf Fund and Western Asset positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Scharf Fund 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 Scharf Fund Institutional and Western Asset New 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.