Correlation Between Western Asset and Baird Intermediate

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

By analyzing existing cross correlation between Western Asset High and Baird Intermediate Bond, you can compare the effects of market volatilities on Western Asset and Baird Intermediate 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 Baird Intermediate. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Asset and Baird Intermediate.

Diversification Opportunities for Western Asset and Baird Intermediate

0.84

Correlation Coefficient

Western Asset  Baird Intermediate

Very poor diversification

The 3 months correlation between Western and Baird is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset High and Baird Intermediate Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baird Intermediate Bond 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 High are associated (or correlated) with Baird Intermediate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baird Intermediate Bond has no effect on the direction of Western Asset i.e., Western Asset and Baird Intermediate go up and down completely randomly.

Pair Corralation between Western Asset and Baird Intermediate

Assuming the 90 days horizon Western Asset is expected to generate 1.43 times less return on investment than Baird Intermediate. In addition to that, Western Asset is 1.18 times more volatile than Baird Intermediate Bond. It trades about 0.09 of its total potential returns per unit of risk. Baird Intermediate Bond is currently generating about 0.16 per unit of volatility. If you would invest  1,022  in Baird Intermediate Bond on December 29, 2024 and sell it today you would earn a total of  19.00  from holding Baird Intermediate Bond or generate 1.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.39%
Values	Daily Returns

Western Asset High  vs.  Baird Intermediate Bond

Western Asset High

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Western Asset High are ranked lower than 7 (%) 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.

Baird Intermediate Bond

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Baird Intermediate Bond are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Baird Intermediate 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 Baird Intermediate

The main advantage of trading using opposite Western Asset and Baird Intermediate positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Asset position performs unexpectedly, Baird Intermediate 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 Baird Intermediate will offset losses from the drop in Baird Intermediate's long position.

The idea behind Western Asset High and Baird Intermediate Bond 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.