Correlation Between Western Asset and Nuveen Mortgage

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

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

Diversification Opportunities for Western Asset and Nuveen Mortgage

0.8

Correlation Coefficient

Western Asset  Nuveen Mortgage

Very poor diversification

The 3 months correlation between Western and Nuveen is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset Investment and Nuveen Mortgage Opportunity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nuveen Mortgage Oppo 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 Investment are associated (or correlated) with Nuveen Mortgage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nuveen Mortgage Oppo has no effect on the direction of Western Asset i.e., Western Asset and Nuveen Mortgage go up and down completely randomly.

Pair Corralation between Western Asset and Nuveen Mortgage

Considering the 90-day investment horizon Western Asset is expected to generate 1.96 times less return on investment than Nuveen Mortgage. But when comparing it to its historical volatility, Western Asset Investment is 1.36 times less risky than Nuveen Mortgage. It trades about 0.16 of its potential returns per unit of risk. Nuveen Mortgage Opportunity is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  1,760  in Nuveen Mortgage Opportunity on December 28, 2024 and sell it today you would earn a total of  114.00  from holding Nuveen Mortgage Opportunity or generate 6.48% return on investment over 90 days.

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

Western Asset Investment  vs.  Nuveen Mortgage Opportunity

Western Asset Investment

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Western Asset Investment are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong technical and fundamental indicators, Western Asset is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Nuveen Mortgage Oppo

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Nuveen Mortgage Opportunity are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent essential indicators, Nuveen Mortgage may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Western Asset and Nuveen Mortgage

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

The idea behind Western Asset Investment and Nuveen Mortgage Opportunity 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.