Correlation Between Western Asset and Capital World
Can any of the company-specific risk be diversified away by investing in both Western Asset and Capital World 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 Capital World into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Western Asset High and Capital World Bond, you can compare the effects of market volatilities on Western Asset and Capital World 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 Capital World. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Asset and Capital World.
Diversification Opportunities for Western Asset and Capital World
-0.45 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Western and Capital is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset High and Capital World Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital World Bond 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 High are associated (or correlated) with Capital World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital World Bond has no effect on the direction of Western Asset i.e., Western Asset and Capital World go up and down completely randomly.
Pair Corralation between Western Asset and Capital World
Assuming the 90 days horizon Western Asset High is expected to generate 0.42 times more return on investment than Capital World. However, Western Asset High is 2.4 times less risky than Capital World. It trades about 0.15 of its potential returns per unit of risk. Capital World Bond is currently generating about -0.11 per unit of risk. If you would invest 701.00 in Western Asset High on August 28, 2024 and sell it today you would earn a total of 4.00 from holding Western Asset High or generate 0.57% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Western Asset High vs. Capital World Bond
Performance |
| Timeline |
| Western Asset High |
| Capital World Bond |
Western Asset and Capital World Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Western Asset and Capital World
The main advantage of trading using opposite Western Asset and Capital World positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Asset position performs unexpectedly, Capital World 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 Capital World will offset losses from the drop in Capital World's long position.| Western Asset vs. Clearbridge Aggressive Growth | Western Asset vs. Clearbridge Small Cap | Western Asset vs. Qs International Equity | Western Asset vs. Clearbridge Appreciation Fund |
| Capital World vs. Ab High Income | Capital World vs. Morningstar Aggressive Growth | Capital World vs. Franklin High Income | Capital World vs. Western Asset High |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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