Correlation Between Western Asset and First American
Can any of the company-specific risk be diversified away by investing in both Western Asset and First American 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 Western Asset and First American into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Western Asset Inflation and First American Funds, you can compare the effects of market volatilities on Western Asset and First American 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 Western Asset with a short position of First American. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Asset and First American.
Diversification Opportunities for Western Asset and First American
-0.65 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Western and First is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset Inflation and First American Funds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First American Funds and Western Asset 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 Western Asset Inflation are associated (or correlated) with First American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First American Funds has no effect on the direction of Western Asset i.e., Western Asset and First American go up and down completely randomly.
Pair Corralation between Western Asset and First American
Assuming the 90 days horizon Western Asset is expected to generate 2.61 times less return on investment than First American. But when comparing it to its historical volatility, Western Asset Inflation is 1.51 times less risky than First American. It trades about 0.02 of its potential returns per unit of risk. First American Funds is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 91.00 in First American Funds on September 3, 2024 and sell it today you would earn a total of 9.00 from holding First American Funds or generate 9.89% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 99.8% |
| Values | Daily Returns |
Western Asset Inflation vs. First American Funds
Performance |
| Timeline |
| Western Asset Inflation |
| First American Funds |
Western Asset and First American Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Western Asset and First American
The main advantage of trading using opposite Western Asset and First American positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Asset position performs unexpectedly, First American 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 First American will offset losses from the drop in First American's long position.| Western Asset vs. Blackrock Sm Cap | Western Asset vs. Principal Lifetime Hybrid | Western Asset vs. Adams Diversified Equity | Western Asset vs. Lord Abbett Diversified |
| First American vs. Vanguard Total Stock | First American vs. Vanguard 500 Index | First American vs. Vanguard Total Stock | First American 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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