Correlation Between American Funds and Western Asset
Can any of the company-specific risk be diversified away by investing in both American Funds 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 American Funds and Western Asset into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Funds 2060 and Western Asset Diversified, you can compare the effects of market volatilities on American Funds 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 American Funds with a short position of Western Asset. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and Western Asset.
Diversification Opportunities for American Funds and Western Asset
-0.37 | Correlation Coefficient |
Very good diversification
The 3 months correlation between American and Western is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding American Funds 2060 and Western Asset Diversified in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Asset Diversified and American Funds 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 American Funds 2060 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 Diversified has no effect on the direction of American Funds i.e., American Funds and Western Asset go up and down completely randomly.
Pair Corralation between American Funds and Western Asset
Assuming the 90 days horizon American Funds 2060 is expected to generate 1.96 times more return on investment than Western Asset. However, American Funds is 1.96 times more volatile than Western Asset Diversified. It trades about 0.1 of its potential returns per unit of risk. Western Asset Diversified is currently generating about 0.03 per unit of risk. If you would invest 1,304 in American Funds 2060 on September 14, 2024 and sell it today you would earn a total of 527.00 from holding American Funds 2060 or generate 40.41% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Funds 2060 vs. Western Asset Diversified
Performance |
| Timeline |
| American Funds 2060 |
| Western Asset Diversified |
American Funds and Western Asset Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Funds and Western Asset
The main advantage of trading using opposite American Funds and Western Asset positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Funds 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.| American Funds vs. Western Asset Diversified | American Funds vs. Ab All Market | American Funds vs. Shelton Emerging Markets | American Funds vs. Ashmore Emerging Markets |
| Western Asset vs. Vanguard Total Stock | Western Asset vs. Vanguard 500 Index | Western Asset vs. Vanguard Total Stock | Western Asset vs. Vanguard Total Stock |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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