Correlation Between Western Assets and American Funds
Can any of the company-specific risk be diversified away by investing in both Western Assets and American Funds 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 American Funds 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 American Funds Tax Exempt, you can compare the effects of market volatilities on Western Assets and American Funds 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 American Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Assets and American Funds.
Diversification Opportunities for Western Assets and American Funds
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Western and American is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Western Assets Emerging and American Funds Tax Exempt in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds Tax 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 American Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Funds Tax has no effect on the direction of Western Assets i.e., Western Assets and American Funds go up and down completely randomly.
Pair Corralation between Western Assets and American Funds
Assuming the 90 days horizon Western Assets Emerging is expected to generate 3.29 times more return on investment than American Funds. However, Western Assets is 3.29 times more volatile than American Funds Tax Exempt. It trades about 0.16 of its potential returns per unit of risk. American Funds Tax Exempt is currently generating about 0.12 per unit of risk. If you would invest 924.00 in Western Assets Emerging on August 24, 2024 and sell it today you would earn a total of 150.00 from holding Western Assets Emerging or generate 16.23% 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. American Funds Tax Exempt
Performance |
| Timeline |
| Western Assets Emerging |
| American Funds Tax |
Western Assets and American Funds Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Western Assets and American Funds
The main advantage of trading using opposite Western Assets and American Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Assets position performs unexpectedly, American Funds 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 American Funds will offset losses from the drop in American Funds' long position.| Western Assets vs. Vanguard Total Stock | Western Assets vs. Vanguard 500 Index | Western Assets vs. Vanguard Total Stock | Western Assets vs. Vanguard Total Stock |
| American Funds vs. Dws Emerging Markets | American Funds vs. Rbc Emerging Markets | American Funds vs. Rbc Bluebay Emerging | American Funds vs. Western Assets Emerging |
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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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