Correlation Between Bond Market and Western Asset
Can any of the company-specific risk be diversified away by investing in both Bond Market 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 Bond Market and Western Asset into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Bond Market Index and Western Asset Diversified, you can compare the effects of market volatilities on Bond Market 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 Bond Market with a short position of Western Asset. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bond Market and Western Asset.
Diversification Opportunities for Bond Market and Western Asset
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Bond and Western is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Bond Market Index 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 Bond Market 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 Bond Market Index 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 Bond Market i.e., Bond Market and Western Asset go up and down completely randomly.
Pair Corralation between Bond Market and Western Asset
Assuming the 90 days horizon Bond Market Index is expected to generate 0.94 times more return on investment than Western Asset. However, Bond Market Index is 1.06 times less risky than Western Asset. It trades about 0.24 of its potential returns per unit of risk. Western Asset Diversified is currently generating about 0.11 per unit of risk. If you would invest 861.00 in Bond Market Index on September 13, 2024 and sell it today you would earn a total of 11.00 from holding Bond Market Index or generate 1.28% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.45% |
| Values | Daily Returns |
Bond Market Index vs. Western Asset Diversified
Performance |
| Timeline |
| Bond Market Index |
| Western Asset Diversified |
Bond Market and Western Asset Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bond Market and Western Asset
The main advantage of trading using opposite Bond Market and Western Asset positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bond Market 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.| Bond Market vs. Strategic Asset Management | Bond Market vs. Strategic Asset Management | Bond Market vs. Strategic Asset Management | Bond Market vs. Strategic Asset Management |
| 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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