Correlation Between Extended Market and Western Asset
Can any of the company-specific risk be diversified away by investing in both Extended Market 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 Extended Market and Western Asset into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Extended Market Index and Western Asset Diversified, you can compare the effects of market volatilities on Extended Market 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 Extended Market with a short position of Western Asset. Check out your portfolio center. Please also check ongoing floating volatility patterns of Extended Market and Western Asset.
Diversification Opportunities for Extended Market and Western Asset
-0.58 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Extended and Western is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Extended Market Index 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 Extended Market 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 Extended Market Index 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 Extended Market i.e., Extended Market and Western Asset go up and down completely randomly.
Pair Corralation between Extended Market and Western Asset
Assuming the 90 days horizon Extended Market Index is expected to generate 4.93 times more return on investment than Western Asset. However, Extended Market is 4.93 times more volatile than Western Asset Diversified. It trades about 0.3 of its potential returns per unit of risk. Western Asset Diversified is currently generating about -0.03 per unit of risk. If you would invest 2,327 in Extended Market Index on August 28, 2024 and sell it today you would earn a total of 201.00 from holding Extended Market Index or generate 8.64% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Extended Market Index vs. Western Asset Diversified
Performance |
| Timeline |
| Extended Market Index |
| Western Asset Diversified |
Extended Market and Western Asset Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Extended Market and Western Asset
The main advantage of trading using opposite Extended Market and Western Asset positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Extended Market 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.| Extended Market vs. Income Fund Income | Extended Market vs. Usaa Nasdaq 100 | Extended Market vs. Victory Diversified Stock | Extended Market vs. Intermediate Term Bond Fund |
| Western Asset vs. Ab All Market | Western Asset vs. Pnc Emerging Markets | Western Asset vs. T Rowe Price | Western Asset vs. Shelton Emerging Markets |
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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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