Correlation Between Inverse Government and Western Asset

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

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

Diversification Opportunities for Inverse Government and Western Asset

-0.36

Correlation Coefficient

Inverse Government  Western Asset

Very good diversification

The 3 months correlation between Inverse and Western is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Inverse Government Long and Western Asset Adjustable in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Asset Adjustable and Inverse Government 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 Inverse Government Long 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 Adjustable has no effect on the direction of Inverse Government i.e., Inverse Government and Western Asset go up and down completely randomly.

Pair Corralation between Inverse Government and Western Asset

Assuming the 90 days horizon Inverse Government Long is expected to under-perform the Western Asset. In addition to that, Inverse Government is 8.86 times more volatile than Western Asset Adjustable. It trades about -0.06 of its total potential returns per unit of risk. Western Asset Adjustable is currently generating about 0.26 per unit of volatility. If you would invest  903.00  in Western Asset Adjustable on December 21, 2024 and sell it today you would earn a total of  12.00  from holding Western Asset Adjustable or generate 1.33% return on investment over 90 days.

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

Inverse Government Long  vs.  Western Asset Adjustable

Inverse Government Long

Risk-Adjusted Performance

Very Weak

Over the last 90 days Inverse Government Long has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Inverse Government is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Western Asset Adjustable

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Western Asset Adjustable are ranked lower than 20 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Western Asset is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Inverse Government and Western Asset

The main advantage of trading using opposite Inverse Government and Western Asset positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Inverse Government 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 Inverse Government Long and Western Asset Adjustable 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.