Correlation Between Short-term Government and Western Asset
Can any of the company-specific risk be diversified away by investing in both Short-term Government 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 Short-term Government and Western Asset into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Short Term Government Fund and Western Asset Managed, you can compare the effects of market volatilities on Short-term Government 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 Short-term Government with a short position of Western Asset. Check out your portfolio center. Please also check ongoing floating volatility patterns of Short-term Government and Western Asset.
Diversification Opportunities for Short-term Government and Western Asset
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Short-term and Western is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Short Term Government Fund and Western Asset Managed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Asset Managed and Short-term Government 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 Short Term Government Fund 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 Managed has no effect on the direction of Short-term Government i.e., Short-term Government and Western Asset go up and down completely randomly.
Pair Corralation between Short-term Government and Western Asset
Assuming the 90 days horizon Short-term Government is expected to generate 669.0 times less return on investment than Western Asset. But when comparing it to its historical volatility, Short Term Government Fund is 3.15 times less risky than Western Asset. It trades about 0.0 of its potential returns per unit of risk. Western Asset Managed is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest 1,497 in Western Asset Managed on August 30, 2024 and sell it today you would earn a total of 22.00 from holding Western Asset Managed or generate 1.47% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Short Term Government Fund vs. Western Asset Managed
Performance |
| Timeline |
| Short Term Government |
| Western Asset Managed |
Short-term Government and Western Asset Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Short-term Government and Western Asset
The main advantage of trading using opposite Short-term Government and Western Asset positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Short-term Government 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.| Short-term Government vs. Vanguard Short Term Tax Exempt | Short-term Government vs. HUMANA INC | Short-term Government vs. Aquagold International | Short-term Government vs. Barloworld Ltd ADR |
| Western Asset vs. Blackrock Government Bond | Western Asset vs. Aig Government Money | Western Asset vs. Lord Abbett Government | Western Asset vs. Short Term Government Fund |
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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