Correlation Between California High and Western Asset
Can any of the company-specific risk be diversified away by investing in both California High 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 California High and Western Asset into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between California High Yield Municipal and Western Asset Mortgage, you can compare the effects of market volatilities on California High 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 California High with a short position of Western Asset. Check out your portfolio center. Please also check ongoing floating volatility patterns of California High and Western Asset.
Diversification Opportunities for California High and Western Asset
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between California and Western is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding California High Yield Municipa and Western Asset Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Asset Mortgage and California High 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 California High Yield Municipal 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 Mortgage has no effect on the direction of California High i.e., California High and Western Asset go up and down completely randomly.
Pair Corralation between California High and Western Asset
Assuming the 90 days horizon California High Yield Municipal is expected to generate 0.64 times more return on investment than Western Asset. However, California High Yield Municipal is 1.57 times less risky than Western Asset. It trades about 0.08 of its potential returns per unit of risk. Western Asset Mortgage is currently generating about 0.05 per unit of risk. If you would invest 917.00 in California High Yield Municipal on September 12, 2024 and sell it today you would earn a total of 79.00 from holding California High Yield Municipal or generate 8.62% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
California High Yield Municipa vs. Western Asset Mortgage
Performance |
| Timeline |
| California High Yield |
| Western Asset Mortgage |
California High and Western Asset Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with California High and Western Asset
The main advantage of trading using opposite California High and Western Asset positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if California High 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.| California High vs. T Rowe Price | California High vs. Bbh Intermediate Municipal | California High vs. Ab Bond Inflation | California High vs. Blrc Sgy Mnp |
| Western Asset vs. Metropolitan West Total | Western Asset vs. SCOR PK | Western Asset vs. Morningstar Unconstrained Allocation | Western Asset vs. Thrivent 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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