Correlation Between Tax Exempt and Western Asset
Can any of the company-specific risk be diversified away by investing in both Tax Exempt and Western Asset 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 Tax Exempt and Western Asset into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Tax Exempt Bond and Western Asset Intermediate Term, you can compare the effects of market volatilities on Tax Exempt and Western Asset 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 Tax Exempt with a short position of Western Asset. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tax Exempt and Western Asset.
Diversification Opportunities for Tax Exempt and Western Asset
0.97 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Tax and Western is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Tax Exempt Bond and Western Asset Intermediate Ter in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Asset Interm and Tax Exempt 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 Tax Exempt Bond are associated (or correlated) with Western Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Asset Interm has no effect on the direction of Tax Exempt i.e., Tax Exempt and Western Asset go up and down completely randomly.
Pair Corralation between Tax Exempt and Western Asset
Assuming the 90 days horizon Tax Exempt Bond is expected to generate 0.75 times more return on investment than Western Asset. However, Tax Exempt Bond is 1.34 times less risky than Western Asset. It trades about 0.52 of its potential returns per unit of risk. Western Asset Intermediate Term is currently generating about 0.29 per unit of risk. If you would invest 1,245 in Tax Exempt Bond on September 13, 2024 and sell it today you would earn a total of 14.00 from holding Tax Exempt Bond or generate 1.12% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Tax Exempt Bond vs. Western Asset Intermediate Ter
Performance |
| Timeline |
| Tax Exempt Bond |
| Western Asset Interm |
Tax Exempt and Western Asset Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Tax Exempt and Western Asset
The main advantage of trading using opposite Tax Exempt and Western Asset positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tax Exempt position performs unexpectedly, Western Asset 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 Western Asset will offset losses from the drop in Western Asset's long position.| Tax Exempt vs. Dreyfus Government Cash | Tax Exempt vs. Schwab Government Money | Tax Exempt vs. Aig Government Money | Tax Exempt vs. Lord Abbett Government |
| Western Asset vs. Prudential High Yield | Western Asset vs. Blackrock High Yield | Western Asset vs. Gmo High Yield | Western Asset vs. Siit High Yield |
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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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