Correlation Between American Funds and Western Assets
Can any of the company-specific risk be diversified away by investing in both American Funds and Western Assets 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 Assets into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Funds 2040 and Western Assets Emerging, you can compare the effects of market volatilities on American Funds and Western Assets 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 Assets. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and Western Assets.
Diversification Opportunities for American Funds and Western Assets
0.38 | Correlation Coefficient |
Weak diversification
The 3 months correlation between American and Western is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding American Funds 2040 and Western Assets Emerging in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Assets Emerging 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 2040 are associated (or correlated) with Western Assets. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Assets Emerging has no effect on the direction of American Funds i.e., American Funds and Western Assets go up and down completely randomly.
Pair Corralation between American Funds and Western Assets
Assuming the 90 days horizon American Funds 2040 is expected to generate 1.94 times more return on investment than Western Assets. However, American Funds is 1.94 times more volatile than Western Assets Emerging. It trades about 0.11 of its potential returns per unit of risk. Western Assets Emerging is currently generating about 0.13 per unit of risk. If you would invest 1,948 in American Funds 2040 on September 3, 2024 and sell it today you would earn a total of 208.00 from holding American Funds 2040 or generate 10.68% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Funds 2040 vs. Western Assets Emerging
Performance |
| Timeline |
| American Funds 2040 |
| Western Assets Emerging |
American Funds and Western Assets Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Funds and Western Assets
The main advantage of trading using opposite American Funds and Western Assets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Funds position performs unexpectedly, Western Assets 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 Assets will offset losses from the drop in Western Assets' long position.| American Funds vs. Western Assets Emerging | American Funds vs. Morgan Stanley Emerging | American Funds vs. Oklahoma College Savings | American Funds vs. Templeton Developing Markets |
| Western Assets vs. Vanguard Total Stock | Western Assets vs. Vanguard 500 Index | Western Assets vs. Vanguard Total Stock | Western Assets 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.
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