Correlation Between Western Asset and Madison Core

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

Diversification Opportunities for Western Asset and Madison Core

0.88

Correlation Coefficient

Western Asset  Madison Core

Very poor diversification

The 3 months correlation between Western and Madison is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset Diversified and Madison Core Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Madison Core 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 Diversified are associated (or correlated) with Madison Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Madison Core Bond has no effect on the direction of Western Asset i.e., Western Asset and Madison Core go up and down completely randomly.

Pair Corralation between Western Asset and Madison Core

Assuming the 90 days horizon Western Asset Diversified is expected to under-perform the Madison Core. But the mutual fund apears to be less risky and, when comparing its historical volatility, Western Asset Diversified is 1.08 times less risky than Madison Core. The mutual fund trades about -0.01 of its potential returns per unit of risk. The Madison Core Bond is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  845.00  in Madison Core Bond on October 7, 2024 and sell it today you would earn a total of  36.00  from holding Madison Core Bond or generate 4.26% return on investment over 90 days.

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

Western Asset Diversified  vs.  Madison Core Bond

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.

Madison Core Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Madison Core Bond has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Madison Core 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 Madison Core

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

The idea behind Western Asset Diversified and Madison Core 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.