Correlation Between Western Asset and Thornburg Income

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

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

Diversification Opportunities for Western Asset and Thornburg Income

0.63

Correlation Coefficient

Western Asset  Thornburg Income

Poor diversification

The 3 months correlation between Western and Thornburg is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset Diversified and Thornburg Income Builder in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thornburg Income Builder 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 Diversified are associated (or correlated) with Thornburg Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thornburg Income Builder has no effect on the direction of Western Asset i.e., Western Asset and Thornburg Income go up and down completely randomly.

Pair Corralation between Western Asset and Thornburg Income

Considering the 90-day investment horizon Western Asset is expected to generate 1.89 times less return on investment than Thornburg Income. But when comparing it to its historical volatility, Western Asset Diversified is 1.1 times less risky than Thornburg Income. It trades about 0.15 of its potential returns per unit of risk. Thornburg Income Builder is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  1,619  in Thornburg Income Builder on December 29, 2024 and sell it today you would earn a total of  155.00  from holding Thornburg Income Builder or generate 9.57% return on investment over 90 days.

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

Western Asset Diversified  vs.  Thornburg Income Builder

Western Asset Diversified

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Western Asset Diversified are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong fundamental indicators, Western Asset is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Thornburg Income Builder

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Thornburg Income Builder are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile essential indicators, Thornburg Income may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Western Asset and Thornburg Income

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

The idea behind Western Asset Diversified and Thornburg Income Builder 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.