Correlation Between Western Asset and Nuveen SP

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

By analyzing existing cross correlation between Western Asset Global and Nuveen SP 500, you can compare the effects of market volatilities on Western Asset and Nuveen SP 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 Nuveen SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Asset and Nuveen SP.

Diversification Opportunities for Western Asset and Nuveen SP

0.02

Correlation Coefficient

Western Asset  Nuveen SP

Significant diversification

The 3 months correlation between Western and Nuveen is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset Global and Nuveen SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nuveen SP 500 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 Global are associated (or correlated) with Nuveen SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nuveen SP 500 has no effect on the direction of Western Asset i.e., Western Asset and Nuveen SP go up and down completely randomly.

Pair Corralation between Western Asset and Nuveen SP

Considering the 90-day investment horizon Western Asset Global is expected to generate 0.59 times more return on investment than Nuveen SP. However, Western Asset Global is 1.7 times less risky than Nuveen SP. It trades about 0.2 of its potential returns per unit of risk. Nuveen SP 500 is currently generating about -0.01 per unit of risk. If you would invest  1,083  in Western Asset Global on December 25, 2024 and sell it today you would earn a total of  69.00  from holding Western Asset Global or generate 6.37% return on investment over 90 days.

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

Western Asset Global  vs.  Nuveen SP 500

Western Asset Global

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Western Asset Global are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, Western Asset may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Nuveen SP 500

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nuveen SP 500 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Nuveen SP 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 Nuveen SP

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

The idea behind Western Asset Global and Nuveen SP 500 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.