Correlation Between Western Asset and Absolute Convertible
Can any of the company-specific risk be diversified away by investing in both Western Asset and Absolute Convertible 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 Absolute Convertible into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Western Asset Smash and Absolute Convertible Arbitrage, you can compare the effects of market volatilities on Western Asset and Absolute Convertible 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 Absolute Convertible. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Asset and Absolute Convertible.
Diversification Opportunities for Western Asset and Absolute Convertible
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Western and Absolute is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset Smash and Absolute Convertible Arbitrage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Absolute Convertible 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 Smash are associated (or correlated) with Absolute Convertible. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Absolute Convertible has no effect on the direction of Western Asset i.e., Western Asset and Absolute Convertible go up and down completely randomly.
Pair Corralation between Western Asset and Absolute Convertible
Assuming the 90 days horizon Western Asset Smash is expected to generate 2.79 times more return on investment than Absolute Convertible. However, Western Asset is 2.79 times more volatile than Absolute Convertible Arbitrage. It trades about 0.45 of its potential returns per unit of risk. Absolute Convertible Arbitrage is currently generating about 0.49 per unit of risk. If you would invest 572.00 in Western Asset Smash on October 25, 2024 and sell it today you would earn a total of 8.00 from holding Western Asset Smash or generate 1.4% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Western Asset Smash vs. Absolute Convertible Arbitrage
Performance |
| Timeline |
| Western Asset Smash |
| Absolute Convertible |
Western Asset and Absolute Convertible Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Western Asset and Absolute Convertible
The main advantage of trading using opposite Western Asset and Absolute Convertible positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Asset position performs unexpectedly, Absolute Convertible 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 Absolute Convertible will offset losses from the drop in Absolute Convertible's long position.| Western Asset vs. Absolute Convertible Arbitrage | Western Asset vs. Calamos Dynamic Convertible | Western Asset vs. Columbia Convertible Securities | Western Asset vs. Gabelli Convertible And |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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