Correlation Between Western Asset and Western Asset

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

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

Diversification Opportunities for Western Asset and Western Asset

0.84

Correlation Coefficient

Western Asset  Western Asset

Very poor diversification

The 3 months correlation between Western and Western is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset Managed and Western Asset Inflation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Asset Inflation 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 Managed 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 Inflation has no effect on the direction of Western Asset i.e., Western Asset and Western Asset go up and down completely randomly.

Pair Corralation between Western Asset and Western Asset

Assuming the 90 days horizon Western Asset Managed is expected to under-perform the Western Asset. But the mutual fund apears to be less risky and, when comparing its historical volatility, Western Asset Managed is 1.0 times less risky than Western Asset. The mutual fund trades about -0.02 of its potential returns per unit of risk. The Western Asset Inflation is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  921.00  in Western Asset Inflation on November 29, 2024 and sell it today you would earn a total of  7.00  from holding Western Asset Inflation or generate 0.76% return on investment over 90 days.

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

Western Asset Managed  vs.  Western Asset Inflation

Western Asset Managed

Risk-Adjusted Performance

Very Weak

Over the last 90 days Western Asset Managed has generated negative risk-adjusted returns adding no value to fund investors. 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.

Western Asset Inflation

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Western Asset Inflation are ranked lower than 4 (%) 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 Western Asset and Western Asset

The main advantage of trading using opposite Western Asset and Western Asset positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Asset 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 Western Asset Managed and Western Asset Inflation 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.