Correlation Between Western Assets and Inverse Dow
Can any of the company-specific risk be diversified away by investing in both Western Assets and Inverse Dow 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 Inverse Dow 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 Inverse Dow 2x, you can compare the effects of market volatilities on Western Assets and Inverse Dow 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 Inverse Dow. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Assets and Inverse Dow.
Diversification Opportunities for Western Assets and Inverse Dow
-0.17 | Correlation Coefficient |
Good diversification
The 3 months correlation between Western and Inverse is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Western Assets Emerging and Inverse Dow 2x in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inverse Dow 2x 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 Inverse Dow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inverse Dow 2x has no effect on the direction of Western Assets i.e., Western Assets and Inverse Dow go up and down completely randomly.
Pair Corralation between Western Assets and Inverse Dow
Assuming the 90 days horizon Western Assets Emerging is expected to generate 0.2 times more return on investment than Inverse Dow. However, Western Assets Emerging is 5.01 times less risky than Inverse Dow. It trades about 0.16 of its potential returns per unit of risk. Inverse Dow 2x is currently generating about -0.37 per unit of risk. If you would invest 1,066 in Western Assets Emerging on September 4, 2024 and sell it today you would earn a total of 13.00 from holding Western Assets Emerging or generate 1.22% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Western Assets Emerging vs. Inverse Dow 2x
Performance |
| Timeline |
| Western Assets Emerging |
| Inverse Dow 2x |
Western Assets and Inverse Dow Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Western Assets and Inverse Dow
The main advantage of trading using opposite Western Assets and Inverse Dow positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Assets position performs unexpectedly, Inverse Dow 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 Inverse Dow will offset losses from the drop in Inverse Dow's long position.| Western Assets vs. Heartland Value Plus | Western Assets vs. Royce Opportunity Fund | Western Assets vs. Royce Opportunity Fund | Western Assets vs. Queens Road Small |
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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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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