Correlation Between Western Asset and Federated Hermes

Can any of the company-specific risk be diversified away by investing in both Western Asset and Federated Hermes 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 Federated Hermes 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 Federated Hermes Inflation, you can compare the effects of market volatilities on Western Asset and Federated Hermes 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 Federated Hermes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Asset and Federated Hermes.

Diversification Opportunities for Western Asset and Federated Hermes

0.93

Correlation Coefficient

Western Asset  Federated Hermes

Almost no diversification

The 3 months correlation between Western and Federated is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset Diversified and Federated Hermes Inflation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federated Hermes Inf 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 Federated Hermes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federated Hermes Inf has no effect on the direction of Western Asset i.e., Western Asset and Federated Hermes go up and down completely randomly.

Pair Corralation between Western Asset and Federated Hermes

Assuming the 90 days horizon Western Asset Diversified is expected to under-perform the Federated Hermes. But the mutual fund apears to be less risky and, when comparing its historical volatility, Western Asset Diversified is 1.06 times less risky than Federated Hermes. The mutual fund trades about -0.03 of its potential returns per unit of risk. The Federated Hermes Inflation is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  967.00  in Federated Hermes Inflation on September 23, 2024 and sell it today you would earn a total of  8.00  from holding Federated Hermes Inflation or generate 0.83% 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 Diversified  vs.  Federated Hermes Inflation

Western Asset Diversified

Risk-Adjusted Performance

0 of 100

Very Weak

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

Federated Hermes Inf

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Federated Hermes Inflation has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Federated Hermes 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 Federated Hermes

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

The idea behind Western Asset Diversified and Federated Hermes Inflation 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.