Correlation Between Western Assets and Rational/pier
Can any of the company-specific risk be diversified away by investing in both Western Assets and Rational/pier 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 Assets and Rational/pier into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Western Assets Emerging and Rationalpier 88 Convertible, you can compare the effects of market volatilities on Western Assets and Rational/pier 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 Assets with a short position of Rational/pier. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Assets and Rational/pier.
Diversification Opportunities for Western Assets and Rational/pier
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Western and Rational/pier is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Western Assets Emerging and Rationalpier 88 Convertible in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rationalpier 88 Conv and Western Assets 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 Assets Emerging are associated (or correlated) with Rational/pier. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rationalpier 88 Conv has no effect on the direction of Western Assets i.e., Western Assets and Rational/pier go up and down completely randomly.
Pair Corralation between Western Assets and Rational/pier
Assuming the 90 days horizon Western Assets Emerging is expected to generate 0.97 times more return on investment than Rational/pier. However, Western Assets Emerging is 1.03 times less risky than Rational/pier. It trades about 0.09 of its potential returns per unit of risk. Rationalpier 88 Convertible is currently generating about 0.05 per unit of risk. If you would invest 891.00 in Western Assets Emerging on November 7, 2024 and sell it today you would earn a total of 181.00 from holding Western Assets Emerging or generate 20.31% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Western Assets Emerging vs. Rationalpier 88 Convertible
Performance |
| Timeline |
| Western Assets Emerging |
| Rationalpier 88 Conv |
Western Assets and Rational/pier Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Western Assets and Rational/pier
The main advantage of trading using opposite Western Assets and Rational/pier positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Assets position performs unexpectedly, Rational/pier 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 Rational/pier will offset losses from the drop in Rational/pier's long position.| Western Assets vs. Pace Municipal Fixed | Western Assets vs. Ishares Municipal Bond | Western Assets vs. Morningstar Municipal Bond | Western Assets vs. Old Westbury California |
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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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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