Correlation Between Short Duration and Western Asset
Can any of the company-specific risk be diversified away by investing in both Short Duration 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 Short Duration and Western Asset into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Short Duration Inflation and Western Asset Inflation, you can compare the effects of market volatilities on Short Duration 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 Short Duration with a short position of Western Asset. Check out your portfolio center. Please also check ongoing floating volatility patterns of Short Duration and Western Asset.
Diversification Opportunities for Short Duration and Western Asset
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Short and WESTERN is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Short Duration Inflation and Western Asset Inflation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Asset Inflation and Short Duration 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 Short Duration Inflation 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 Inflation has no effect on the direction of Short Duration i.e., Short Duration and Western Asset go up and down completely randomly.
Pair Corralation between Short Duration and Western Asset
Assuming the 90 days horizon Short Duration is expected to generate 1.14 times less return on investment than Western Asset. But when comparing it to its historical volatility, Short Duration Inflation is 2.12 times less risky than Western Asset. It trades about 0.15 of its potential returns per unit of risk. Western Asset Inflation is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 863.00 in Western Asset Inflation on August 26, 2024 and sell it today you would earn a total of 68.00 from holding Western Asset Inflation or generate 7.88% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Short Duration Inflation vs. Western Asset Inflation
Performance |
| Timeline |
| Short Duration Inflation |
| Western Asset Inflation |
Short Duration and Western Asset Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Short Duration and Western Asset
The main advantage of trading using opposite Short Duration and Western Asset positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Short Duration 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.| Short Duration vs. Inflation Adjusted Bond Fund | Short Duration vs. Diversified Bond Fund | Short Duration vs. Short Duration Fund | Short Duration vs. Core Plus Fund |
| Western Asset vs. Morgan Stanley Government | Western Asset vs. Dreyfus Institutional Reserves | Western Asset vs. Massmutual Premier Funds | Western Asset vs. Institutional Fiduciary Trust |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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