Correlation Between Western Asset and Ab Municipal

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

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

Diversification Opportunities for Western Asset and Ab Municipal

0.78

Correlation Coefficient

Western Asset  Ab Municipal

Poor diversification

The 3 months correlation between Western and MISHX is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset Smash and Ab Municipal Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ab Municipal Income 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 Smash are associated (or correlated) with Ab Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ab Municipal Income has no effect on the direction of Western Asset i.e., Western Asset and Ab Municipal go up and down completely randomly.

Pair Corralation between Western Asset and Ab Municipal

Assuming the 90 days horizon Western Asset Smash is expected to generate 2.15 times more return on investment than Ab Municipal. However, Western Asset is 2.15 times more volatile than Ab Municipal Income. It trades about 0.13 of its potential returns per unit of risk. Ab Municipal Income is currently generating about 0.02 per unit of risk. If you would invest  736.00  in Western Asset Smash on December 29, 2024 and sell it today you would earn a total of  33.00  from holding Western Asset Smash or generate 4.48% return on investment over 90 days.

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

Western Asset Smash  vs.  Ab Municipal Income

Western Asset Smash

Risk-Adjusted Performance

OK

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

Ab Municipal Income

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ab Municipal Income are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical indicators, Ab Municipal 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 Ab Municipal

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

The idea behind Western Asset Smash and Ab Municipal Income 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.