Correlation Between Western Asset and Acuitas Microcap

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

Diversification Opportunities for Western Asset and Acuitas Microcap

-0.43

Correlation Coefficient

Western Asset  Acuitas Microcap

Very good diversification

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

Pair Corralation between Western Asset and Acuitas Microcap

Assuming the 90 days horizon Western Asset Municipal is expected to under-perform the Acuitas Microcap. But the mutual fund apears to be less risky and, when comparing its historical volatility, Western Asset Municipal is 5.81 times less risky than Acuitas Microcap. The mutual fund trades about -0.06 of its potential returns per unit of risk. The Acuitas Microcap Fund is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  1,308  in Acuitas Microcap Fund on August 12, 2024 and sell it today you would earn a total of  207.00  from holding Acuitas Microcap Fund or generate 15.83% 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.  Acuitas Microcap Fund

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.

Acuitas Microcap

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Acuitas Microcap Fund are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Acuitas Microcap showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Western Asset and Acuitas Microcap

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

The idea behind Western Asset Municipal and Acuitas Microcap Fund 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.