Correlation Between Vanguard 500 and Western Asset
Can any of the company-specific risk be diversified away by investing in both Vanguard 500 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 500 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 500 Index and Western Asset Premier, you can compare the effects of market volatilities on Vanguard 500 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 500 with a short position of Western Asset. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard 500 and Western Asset.
Diversification Opportunities for Vanguard 500 and Western Asset
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between VANGUARD and Western is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard 500 Index and Western Asset Premier in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Asset Premier and Vanguard 500 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 500 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 Premier has no effect on the direction of Vanguard 500 i.e., Vanguard 500 and Western Asset go up and down completely randomly.
Pair Corralation between Vanguard 500 and Western Asset
Assuming the 90 days horizon Vanguard 500 Index is expected to generate 5.64 times more return on investment than Western Asset. However, Vanguard 500 is 5.64 times more volatile than Western Asset Premier. It trades about 0.12 of its potential returns per unit of risk. Western Asset Premier is currently generating about 0.14 per unit of risk. If you would invest 40,946 in Vanguard 500 Index on August 26, 2024 and sell it today you would earn a total of 14,045 from holding Vanguard 500 Index or generate 34.3% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard 500 Index vs. Western Asset Premier
Performance |
| Timeline |
| Vanguard 500 Index |
| Western Asset Premier |
Vanguard 500 and Western Asset Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard 500 and Western Asset
The main advantage of trading using opposite Vanguard 500 and Western Asset positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard 500 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.| Vanguard 500 vs. Vanguard Total Stock | Vanguard 500 vs. Vanguard Mid Cap Index | Vanguard 500 vs. Vanguard Small Cap Index | Vanguard 500 vs. Vanguard Total Bond |
| 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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