Correlation Between Vanguard Short and Western Asset

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

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

Diversification Opportunities for Vanguard Short and Western Asset

0.65

Correlation Coefficient

Vanguard Short  Western Asset

Poor diversification

The 3 months correlation between Vanguard and Western is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Short Term Tax Exempt and Western Asset Short in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Asset Short and Vanguard Short 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 Vanguard Short Term Tax Exempt 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 Short has no effect on the direction of Vanguard Short i.e., Vanguard Short and Western Asset go up and down completely randomly.

Pair Corralation between Vanguard Short and Western Asset

Assuming the 90 days horizon Vanguard Short Term Tax Exempt is expected to under-perform the Western Asset. But the mutual fund apears to be less risky and, when comparing its historical volatility, Vanguard Short Term Tax Exempt is 2.83 times less risky than Western Asset. The mutual fund trades about -0.07 of its potential returns per unit of risk. The Western Asset Short is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  500.00  in Western Asset Short on October 9, 2024 and sell it today you would earn a total of  0.00  from holding Western Asset Short or generate 0.0% return on investment over 90 days.

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

Vanguard Short Term Tax Exempt  vs.  Western Asset Short

Vanguard Short Term

Risk-Adjusted Performance

0 of 100

Very Weak

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

Western Asset Short

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Western Asset Short has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental drivers, 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 Vanguard Short and Western Asset

The main advantage of trading using opposite Vanguard Short and Western Asset positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Short 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 Vanguard Short Term Tax Exempt and Western Asset Short 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.