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 E and Western Asset Short Term, 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

0.96

Correlation Coefficient

Western Asset  Western Asset

Almost no diversification

The 3 months correlation between Western and Western is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset E and Western Asset Short Term in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Asset Short 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 E 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 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 E is expected to generate 1.99 times more return on investment than Western Asset. However, Western Asset is 1.99 times more volatile than Western Asset Short Term. It trades about 0.12 of its potential returns per unit of risk. Western Asset Short Term is currently generating about 0.16 per unit of risk. If you would invest  1,031  in Western Asset E on December 30, 2024 and sell it today you would earn a total of  24.00  from holding Western Asset E or generate 2.33% return on investment over 90 days.

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

Western Asset E  vs.  Western Asset Short Term

Western Asset E

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Western Asset E are ranked lower than 9 (%) 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.

Western Asset Short

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Western Asset Short Term are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong essential 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 E and Western Asset Short Term 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.