Correlation Between Western Asset and Prudential Government
Can any of the company-specific risk be diversified away by investing in both Western Asset and Prudential Government 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 Prudential Government into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Western Asset Municipal and Prudential Government Income, you can compare the effects of market volatilities on Western Asset and Prudential Government 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 Prudential Government. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Asset and Prudential Government.
Diversification Opportunities for Western Asset and Prudential Government
0.91 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Western and Prudential is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset Municipal and Prudential Government Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Government 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 Municipal are associated (or correlated) with Prudential Government. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Government has no effect on the direction of Western Asset i.e., Western Asset and Prudential Government go up and down completely randomly.
Pair Corralation between Western Asset and Prudential Government
Assuming the 90 days horizon Western Asset is expected to generate 4.0 times less return on investment than Prudential Government. But when comparing it to its historical volatility, Western Asset Municipal is 1.43 times less risky than Prudential Government. It trades about 0.01 of its potential returns per unit of risk. Prudential Government Income is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 758.00 in Prudential Government Income on September 12, 2024 and sell it today you would earn a total of 36.00 from holding Prudential Government Income or generate 4.75% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Western Asset Municipal vs. Prudential Government Income
Performance |
| Timeline |
| Western Asset Municipal |
| Prudential Government |
Western Asset and Prudential Government Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Western Asset and Prudential Government
The main advantage of trading using opposite Western Asset and Prudential Government positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Asset position performs unexpectedly, Prudential Government 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 Prudential Government will offset losses from the drop in Prudential Government's long position.| Western Asset vs. Barings Active Short | Western Asset vs. Cmg Ultra Short | Western Asset vs. Blackrock Short Term Inflat Protected | Western Asset vs. Rbc Short Duration |
| Prudential Government vs. Falcon Focus Scv | Prudential Government vs. Western Asset Municipal | Prudential Government vs. Scharf Global Opportunity | Prudential Government vs. T Rowe Price |
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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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