Correlation Between Western Asset and Tax Free
Can any of the company-specific risk be diversified away by investing in both Western Asset and Tax Free 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 Tax Free into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Western Asset Pennsylvania and Tax Free Conservative Income, you can compare the effects of market volatilities on Western Asset and Tax Free 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 Tax Free. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Asset and Tax Free.
Diversification Opportunities for Western Asset and Tax Free
0.03 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Western and Tax is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset Pennsylvania and Tax Free Conservative Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tax Free Conservative 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 Pennsylvania are associated (or correlated) with Tax Free. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tax Free Conservative has no effect on the direction of Western Asset i.e., Western Asset and Tax Free go up and down completely randomly.
Pair Corralation between Western Asset and Tax Free
Assuming the 90 days horizon Western Asset Pennsylvania is expected to generate 3.44 times more return on investment than Tax Free. However, Western Asset is 3.44 times more volatile than Tax Free Conservative Income. It trades about 0.1 of its potential returns per unit of risk. Tax Free Conservative Income is currently generating about 0.23 per unit of risk. If you would invest 1,153 in Western Asset Pennsylvania on September 13, 2024 and sell it today you would earn a total of 29.00 from holding Western Asset Pennsylvania or generate 2.52% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 99.2% |
| Values | Daily Returns |
Western Asset Pennsylvania vs. Tax Free Conservative Income
Performance |
| Timeline |
| Western Asset Pennsy |
| Tax Free Conservative |
Western Asset and Tax Free Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Western Asset and Tax Free
The main advantage of trading using opposite Western Asset and Tax Free positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Asset position performs unexpectedly, Tax Free 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 Tax Free will offset losses from the drop in Tax Free's long position.| Western Asset vs. Clearbridge Aggressive Growth | Western Asset vs. Clearbridge Small Cap | Western Asset vs. Qs International Equity | Western Asset vs. Clearbridge Appreciation Fund |
| Tax Free vs. Elfun Diversified Fund | Tax Free vs. Wilmington Diversified Income | Tax Free vs. Calvert Conservative Allocation | Tax Free vs. Western Asset Diversified |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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