Correlation Between Western Asset and Us Government
Can any of the company-specific risk be diversified away by investing in both Western Asset and Us 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 Us Government 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 Us Government Securities, you can compare the effects of market volatilities on Western Asset and Us 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 Us Government. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Asset and Us Government.
Diversification Opportunities for Western Asset and Us Government
0.93 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Western and RGVJX is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset Diversified and Us Government Securities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Us Government Securities 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 Us Government. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Us Government Securities has no effect on the direction of Western Asset i.e., Western Asset and Us Government go up and down completely randomly.
Pair Corralation between Western Asset and Us Government
Assuming the 90 days horizon Western Asset is expected to generate 1.3 times less return on investment than Us Government. But when comparing it to its historical volatility, Western Asset Diversified is 1.18 times less risky than Us Government. It trades about 0.07 of its potential returns per unit of risk. Us Government Securities is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 1,188 in Us Government Securities on September 3, 2024 and sell it today you would earn a total of 6.00 from holding Us Government Securities or generate 0.51% 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 Diversified vs. Us Government Securities
Performance |
| Timeline |
| Western Asset Diversified |
| Us Government Securities |
Western Asset and Us Government Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Western Asset and Us Government
The main advantage of trading using opposite Western Asset and Us Government positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Asset position performs unexpectedly, Us 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 Us Government will offset losses from the drop in Us Government's 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 |
| Us Government vs. Delaware Limited Term Diversified | Us Government vs. Western Asset Diversified | Us Government vs. Calvert Conservative Allocation | Us Government vs. Harbor Diversified International |
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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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