Correlation Between Western Asset and State Street
Can any of the company-specific risk be diversified away by investing in both Western Asset and State Street 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 State Street 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 State Street Target, you can compare the effects of market volatilities on Western Asset and State Street 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 State Street. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Asset and State Street.
Diversification Opportunities for Western Asset and State Street
0.02 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Western and State is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset Diversified and State Street Target in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on State Street Target 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 State Street. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of State Street Target has no effect on the direction of Western Asset i.e., Western Asset and State Street go up and down completely randomly.
Pair Corralation between Western Asset and State Street
Assuming the 90 days horizon Western Asset Diversified is expected to under-perform the State Street. But the mutual fund apears to be less risky and, when comparing its historical volatility, Western Asset Diversified is 1.24 times less risky than State Street. The mutual fund trades about -0.08 of its potential returns per unit of risk. The State Street Target is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 1,278 in State Street Target on September 12, 2024 and sell it today you would earn a total of 26.00 from holding State Street Target or generate 2.03% 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. State Street Target
Performance |
| Timeline |
| Western Asset Diversified |
| State Street Target |
Western Asset and State Street Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Western Asset and State Street
The main advantage of trading using opposite Western Asset and State Street positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Asset position performs unexpectedly, State Street 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 State Street will offset losses from the drop in State Street'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 |
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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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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