Correlation Between Western Asset and Federal Home
Can any of the company-specific risk be diversified away by investing in both Western Asset and Federal Home 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 Federal Home into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Western Asset Investment and Federal Home 530, you can compare the effects of market volatilities on Western Asset and Federal Home 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 Federal Home. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Asset and Federal Home.
Diversification Opportunities for Western Asset and Federal Home
-0.7 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Western and Federal is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset Investment and Federal Home 530 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Home 530 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 Investment are associated (or correlated) with Federal Home. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federal Home 530 has no effect on the direction of Western Asset i.e., Western Asset and Federal Home go up and down completely randomly.
Pair Corralation between Western Asset and Federal Home
Considering the 90-day investment horizon Western Asset is expected to generate 16.4 times less return on investment than Federal Home. But when comparing it to its historical volatility, Western Asset Investment is 9.53 times less risky than Federal Home. It trades about 0.07 of its potential returns per unit of risk. Federal Home 530 is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 286.00 in Federal Home 530 on September 1, 2024 and sell it today you would earn a total of 1,275 from holding Federal Home 530 or generate 445.8% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Western Asset Investment vs. Federal Home 530
Performance |
| Timeline |
| Western Asset Investment |
| Federal Home 530 |
Western Asset and Federal Home Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Western Asset and Federal Home
The main advantage of trading using opposite Western Asset and Federal Home positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Asset position performs unexpectedly, Federal Home 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 Federal Home will offset losses from the drop in Federal Home's long position.| Western Asset vs. Visa Class A | Western Asset vs. Diamond Hill Investment | Western Asset vs. Distoken Acquisition | Western Asset vs. Associated Capital Group |
| Federal Home vs. EvoAir Holdings | Federal Home vs. Zhihu Inc ADR | Federal Home vs. Asure Software | Federal Home vs. AerSale Corp |
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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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