Correlation Between California Bond and Western Assets
Can any of the company-specific risk be diversified away by investing in both California Bond 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 California Bond and Western Assets into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between California Bond Fund and Western Assets Emerging, you can compare the effects of market volatilities on California Bond 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 California Bond with a short position of Western Assets. Check out your portfolio center. Please also check ongoing floating volatility patterns of California Bond and Western Assets.
Diversification Opportunities for California Bond and Western Assets
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between California and Western is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding California Bond Fund 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 California Bond 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 California Bond Fund 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 California Bond i.e., California Bond and Western Assets go up and down completely randomly.
Pair Corralation between California Bond and Western Assets
Assuming the 90 days horizon California Bond Fund is expected to under-perform the Western Assets. But the mutual fund apears to be less risky and, when comparing its historical volatility, California Bond Fund is 1.01 times less risky than Western Assets. The mutual fund trades about -0.04 of its potential returns per unit of risk. The Western Assets Emerging is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest 1,059 in Western Assets Emerging on October 24, 2024 and sell it today you would earn a total of 9.00 from holding Western Assets Emerging or generate 0.85% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
California Bond Fund vs. Western Assets Emerging
Performance |
| Timeline |
| California Bond |
| Western Assets Emerging |
California Bond and Western Assets Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with California Bond and Western Assets
The main advantage of trading using opposite California Bond and Western Assets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if California Bond 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.| California Bond vs. The Texas Fund | California Bond vs. Small Cap Stock | California Bond vs. T Rowe Price | California Bond vs. Rbc Funds Trust |
| Western Assets vs. Georgia Tax Free Bond | Western Assets vs. California Bond Fund | Western Assets vs. Nuveen High Yield | Western Assets vs. Leader Short Term Bond |
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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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