Correlation Between Tax Free and Western Asset
Can any of the company-specific risk be diversified away by investing in both Tax Free 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 Tax Free and Western Asset into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Tax Free Conservative Income and Western Asset Diversified, you can compare the effects of market volatilities on Tax Free 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 Tax Free with a short position of Western Asset. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tax Free and Western Asset.
Diversification Opportunities for Tax Free and Western Asset
-0.69 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Tax and Western is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Tax Free Conservative Income 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 Tax Free 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 Tax Free Conservative Income 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 Tax Free i.e., Tax Free and Western Asset go up and down completely randomly.
Pair Corralation between Tax Free and Western Asset
Assuming the 90 days horizon Tax Free is expected to generate 1.1 times less return on investment than Western Asset. But when comparing it to its historical volatility, Tax Free Conservative Income is 5.55 times less risky than Western Asset. It trades about 0.3 of its potential returns per unit of risk. Western Asset Diversified is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 1,549 in Western Asset Diversified on September 12, 2024 and sell it today you would earn a total of 5.00 from holding Western Asset Diversified or generate 0.32% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Tax Free Conservative Income vs. Western Asset Diversified
Performance |
| Timeline |
| Tax Free Conservative |
| Western Asset Diversified |
Tax Free and Western Asset Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Tax Free and Western Asset
The main advantage of trading using opposite Tax Free and Western Asset positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tax Free 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.| Tax Free vs. Rbb Fund | Tax Free vs. Commonwealth Global Fund | Tax Free vs. Small Cap Stock | Tax Free vs. T Rowe Price |
| 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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