Correlation Between Western Asset and Emerging Markets
Can any of the company-specific risk be diversified away by investing in both Western Asset and Emerging Markets 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 Emerging Markets into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Western Asset Diversified and Emerging Markets Fund, you can compare the effects of market volatilities on Western Asset and Emerging Markets 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 Emerging Markets. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Asset and Emerging Markets.
Diversification Opportunities for Western Asset and Emerging Markets
0.13 | Correlation Coefficient |
Average diversification
The 3 months correlation between Western and Emerging is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset Diversified and Emerging Markets Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Markets 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 Diversified are associated (or correlated) with Emerging Markets. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emerging Markets has no effect on the direction of Western Asset i.e., Western Asset and Emerging Markets go up and down completely randomly.
Pair Corralation between Western Asset and Emerging Markets
Assuming the 90 days horizon Western Asset is expected to generate 2.29 times less return on investment than Emerging Markets. But when comparing it to its historical volatility, Western Asset Diversified is 2.33 times less risky than Emerging Markets. It trades about 0.11 of its potential returns per unit of risk. Emerging Markets Fund is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 1,671 in Emerging Markets Fund on September 13, 2024 and sell it today you would earn a total of 22.00 from holding Emerging Markets Fund or generate 1.32% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Western Asset Diversified vs. Emerging Markets Fund
Performance |
| Timeline |
| Western Asset Diversified |
| Emerging Markets |
Western Asset and Emerging Markets Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Western Asset and Emerging Markets
The main advantage of trading using opposite Western Asset and Emerging Markets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Asset position performs unexpectedly, Emerging Markets 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 Emerging Markets will offset losses from the drop in Emerging Markets' long position.| Western Asset vs. Vanguard Total Stock | Western Asset vs. Vanguard 500 Index | Western Asset vs. Vanguard Total Stock | Western Asset vs. Vanguard Total Stock |
| Emerging Markets vs. International Developed Markets | Emerging Markets vs. Global Real Estate | Emerging Markets vs. Global Real Estate | Emerging Markets vs. Global Real Estate |
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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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