Correlation Between Vanguard Short-term and Western Asset

Can any of the company-specific risk be diversified away by investing in both Vanguard Short-term 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-term 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-term 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-term with a short position of Western Asset. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Short-term and Western Asset.

Diversification Opportunities for Vanguard Short-term and Western Asset

0.97

Correlation Coefficient

Vanguard Short-term  Western Asset

Almost no diversification

The 3 months correlation between Vanguard and Western is 0.97. 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-term 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-term i.e., Vanguard Short-term and Western Asset go up and down completely randomly.

Pair Corralation between Vanguard Short-term and Western Asset

Assuming the 90 days horizon Vanguard Short Term Tax Exempt is expected to generate 0.65 times more return on investment than Western Asset. However, Vanguard Short Term Tax Exempt is 1.54 times less risky than Western Asset. It trades about 0.25 of its potential returns per unit of risk. Western Asset Short is currently generating about 0.13 per unit of risk. If you would invest  1,564  in Vanguard Short Term Tax Exempt on December 22, 2024 and sell it today you would earn a total of  16.00  from holding Vanguard Short Term Tax Exempt or generate 1.02% return on investment over 90 days.

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

Vanguard Short Term Tax Exempt  vs.  Western Asset Short

Vanguard Short Term

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Short Term Tax Exempt are ranked lower than 19 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Vanguard Short-term 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

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Western Asset Short are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. 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-term and Western Asset

The main advantage of trading using opposite Vanguard Short-term and Western Asset positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Short-term 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.

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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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.