Correlation Between Vanguard California and Western Asset
Can any of the company-specific risk be diversified away by investing in both Vanguard California 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 Vanguard California and Western Asset into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard California Long Term and Western Asset Mortgage, you can compare the effects of market volatilities on Vanguard California 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 Vanguard California with a short position of Western Asset. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard California and Western Asset.
Diversification Opportunities for Vanguard California and Western Asset
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Vanguard and Western is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard California Long Term and Western Asset Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Asset Mortgage and Vanguard California 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 Vanguard California Long Term 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 Mortgage has no effect on the direction of Vanguard California i.e., Vanguard California and Western Asset go up and down completely randomly.
Pair Corralation between Vanguard California and Western Asset
Assuming the 90 days horizon Vanguard California is expected to generate 1.04 times less return on investment than Western Asset. But when comparing it to its historical volatility, Vanguard California Long Term is 1.62 times less risky than Western Asset. It trades about 0.07 of its potential returns per unit of risk. Western Asset Mortgage is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 777.00 in Western Asset Mortgage on September 12, 2024 and sell it today you would earn a total of 58.00 from holding Western Asset Mortgage or generate 7.46% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard California Long Term vs. Western Asset Mortgage
Performance |
| Timeline |
| Vanguard California |
| Western Asset Mortgage |
Vanguard California and Western Asset Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard California and Western Asset
The main advantage of trading using opposite Vanguard California and Western Asset positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard California 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.The idea behind Vanguard California Long Term and Western Asset Mortgage pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
| Western Asset vs. Metropolitan West Total | Western Asset vs. SCOR PK | Western Asset vs. Morningstar Unconstrained Allocation | Western Asset vs. Thrivent High Yield |
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 Commodity Directory module to find actively traded commodities issued by global exchanges.
Other Complementary Tools
| Portfolio Volatility Check portfolio volatility and analyze historical return density to properly model market risk | |
| Piotroski F Score Get Piotroski F Score based on the binary analysis strategy of nine different fundamentals | |
| Theme Ratings Determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance | |
| Bollinger Bands Use Bollinger Bands indicator to analyze target price for a given investing horizon | |
| Risk-Return Analysis View associations between returns expected from investment and the risk you assume |