Correlation Between Western Asset and Materials Portfolio

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

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

Diversification Opportunities for Western Asset and Materials Portfolio

0.21

Correlation Coefficient

Western Asset  Materials Portfolio

Modest diversification

The 3 months correlation between Western and Materials is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset Municipal and Materials Portfolio Fidelity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Materials Portfolio 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 Municipal are associated (or correlated) with Materials Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Materials Portfolio has no effect on the direction of Western Asset i.e., Western Asset and Materials Portfolio go up and down completely randomly.

Pair Corralation between Western Asset and Materials Portfolio

Assuming the 90 days horizon Western Asset Municipal is expected to under-perform the Materials Portfolio. But the mutual fund apears to be less risky and, when comparing its historical volatility, Western Asset Municipal is 3.55 times less risky than Materials Portfolio. The mutual fund trades about -0.12 of its potential returns per unit of risk. The Materials Portfolio Fidelity is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  8,364  in Materials Portfolio Fidelity on December 31, 2024 and sell it today you would earn a total of  59.00  from holding Materials Portfolio Fidelity or generate 0.71% return on investment over 90 days.

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

Western Asset Municipal  vs.  Materials Portfolio Fidelity

Western Asset Municipal

Risk-Adjusted Performance

Very Weak

Over the last 90 days Western Asset Municipal has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Western Asset is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Materials Portfolio

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Materials Portfolio Fidelity are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Materials Portfolio 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 Materials Portfolio

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

The idea behind Western Asset Municipal and Materials Portfolio Fidelity 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.