Correlation Between Vanguard Long-term and Western Asset
Can any of the company-specific risk be diversified away by investing in both Vanguard Long-term 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 Long-term 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 Long Term Tax Exempt and Western Asset Managed, you can compare the effects of market volatilities on Vanguard Long-term 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 Long-term with a short position of Western Asset. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Long-term and Western Asset.
Diversification Opportunities for Vanguard Long-term and Western Asset
0.99 | Correlation Coefficient |
No risk reduction
The 3 months correlation between Vanguard and Western is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Long Term Tax Exempt 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 Vanguard Long-term 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 Long Term Tax Exempt 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 Vanguard Long-term i.e., Vanguard Long-term and Western Asset go up and down completely randomly.
Pair Corralation between Vanguard Long-term and Western Asset
Assuming the 90 days horizon Vanguard Long Term Tax Exempt is expected to generate 1.14 times more return on investment than Western Asset. However, Vanguard Long-term is 1.14 times more volatile than Western Asset Managed. It trades about 0.07 of its potential returns per unit of risk. Western Asset Managed is currently generating about 0.07 per unit of risk. If you would invest 1,006 in Vanguard Long Term Tax Exempt on September 3, 2024 and sell it today you would earn a total of 97.00 from holding Vanguard Long Term Tax Exempt or generate 9.64% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Long Term Tax Exempt vs. Western Asset Managed
Performance |
| Timeline |
| Vanguard Long Term |
| Western Asset Managed |
Vanguard Long-term and Western Asset Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Long-term and Western Asset
The main advantage of trading using opposite Vanguard Long-term and Western Asset positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Long-term 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 Long Term Tax Exempt and Western Asset Managed 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. Vanguard Long Term Tax Exempt | Western Asset vs. Vanguard High Yield Tax Exempt | Western Asset vs. Franklin Federal Tax Free | Western Asset vs. Franklin Federal Tax Free |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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