Correlation Between Western Asset and SPDR Barclays

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

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

Diversification Opportunities for Western Asset and SPDR Barclays

0.99

Correlation Coefficient

Western Asset  SPDR Barclays

No risk reduction

The 3 months correlation between Western and SPDR is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset Short and SPDR Barclays Short in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Barclays 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 Short are associated (or correlated) with SPDR Barclays. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Barclays Short has no effect on the direction of Western Asset i.e., Western Asset and SPDR Barclays go up and down completely randomly.

Pair Corralation between Western Asset and SPDR Barclays

Given the investment horizon of 90 days Western Asset Short is expected to generate 1.26 times more return on investment than SPDR Barclays. However, Western Asset is 1.26 times more volatile than SPDR Barclays Short. It trades about 0.25 of its potential returns per unit of risk. SPDR Barclays Short is currently generating about 0.25 per unit of risk. If you would invest  2,376  in Western Asset Short on December 28, 2024 and sell it today you would earn a total of  40.00  from holding Western Asset Short or generate 1.68% 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 Short  vs.  SPDR Barclays Short

Western Asset Short

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Western Asset Short are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Western Asset is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

SPDR Barclays Short

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Barclays Short are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, SPDR Barclays 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 SPDR Barclays

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

The idea behind Western Asset Short and SPDR Barclays 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.