Correlation Between California Bond and Western Asset

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

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

Diversification Opportunities for California Bond and Western Asset

0.4

Correlation Coefficient

California Bond  Western Asset

Very weak diversification

The 3 months correlation between California and Western is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding California Bond Fund 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 California Bond 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 California Bond Fund 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 California Bond i.e., California Bond and Western Asset go up and down completely randomly.

Pair Corralation between California Bond and Western Asset

Assuming the 90 days horizon California Bond is expected to generate 27.0 times less return on investment than Western Asset. But when comparing it to its historical volatility, California Bond Fund is 1.44 times less risky than Western Asset. It trades about 0.0 of its potential returns per unit of risk. Western Asset Inflation is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  931.00  in Western Asset Inflation on September 19, 2024 and sell it today you would earn a total of  1.00  from holding Western Asset Inflation or generate 0.11% return on investment over 90 days.

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

California Bond Fund  vs.  Western Asset Inflation

California Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days California Bond Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental drivers, California Bond 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

0 of 100

Very Weak

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

The main advantage of trading using opposite California Bond and Western Asset positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if California Bond 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 California Bond Fund 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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.