Correlation Between Western Asset and Transam Short

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

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

Diversification Opportunities for Western Asset and Transam Short

0.92

Correlation Coefficient

Western Asset  Transam Short

Almost no diversification

The 3 months correlation between Western and Transam is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset Short and Transam Short Term Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transam Short Term 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 Short are associated (or correlated) with Transam Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transam Short Term has no effect on the direction of Western Asset i.e., Western Asset and Transam Short go up and down completely randomly.

Pair Corralation between Western Asset and Transam Short

Assuming the 90 days horizon Western Asset is expected to generate 2.3 times less return on investment than Transam Short. But when comparing it to its historical volatility, Western Asset Short is 1.2 times less risky than Transam Short. It trades about 0.13 of its potential returns per unit of risk. Transam Short Term Bond is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  967.00  in Transam Short Term Bond on December 22, 2024 and sell it today you would earn a total of  18.00  from holding Transam Short Term Bond or generate 1.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Western Asset Short  vs.  Transam Short Term Bond

Western Asset Short

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Western Asset Short are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental drivers, Western Asset is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Transam Short Term

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Transam Short Term Bond are ranked lower than 19 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Transam Short is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Western Asset and Transam Short

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

The idea behind Western Asset Short and Transam Short Term Bond 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.