Correlation Between IShares Trust and Western Asset

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

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

Diversification Opportunities for IShares Trust and Western Asset

0.93

Correlation Coefficient

IShares Trust  Western Asset

Almost no diversification

The 3 months correlation between IShares and Western is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding iShares Trust and Western Asset Total in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Asset Total and IShares Trust 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 iShares Trust 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 Total has no effect on the direction of IShares Trust i.e., IShares Trust and Western Asset go up and down completely randomly.

Pair Corralation between IShares Trust and Western Asset

Given the investment horizon of 90 days iShares Trust is expected to generate 1.03 times more return on investment than Western Asset. However, IShares Trust is 1.03 times more volatile than Western Asset Total. It trades about -0.06 of its potential returns per unit of risk. Western Asset Total is currently generating about -0.11 per unit of risk. If you would invest  4,389  in iShares Trust on September 12, 2024 and sell it today you would lose (57.00) from holding iShares Trust or give up 1.3% of portfolio value over 90 days.

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

iShares Trust   vs.  Western Asset Total

iShares Trust

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Trust has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, IShares Trust is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Western Asset Total

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Western Asset Total has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Western Asset is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with IShares Trust and Western Asset

The main advantage of trading using opposite IShares Trust and Western Asset positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Trust 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 iShares Trust and Western Asset Total 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.

Check out your portfolio center.

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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.