Correlation Between Western Asset and Inflation-linked
Can any of the company-specific risk be diversified away by investing in both Western Asset and Inflation-linked 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 Inflation-linked 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 Inflation Linked Fixed Income, you can compare the effects of market volatilities on Western Asset and Inflation-linked 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 Inflation-linked. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Asset and Inflation-linked.
Diversification Opportunities for Western Asset and Inflation-linked
0.93 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Western and Inflation-linked is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset Diversified and Inflation Linked Fixed Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inflation Linked Fixed 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 Inflation-linked. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inflation Linked Fixed has no effect on the direction of Western Asset i.e., Western Asset and Inflation-linked go up and down completely randomly.
Pair Corralation between Western Asset and Inflation-linked
Assuming the 90 days horizon Western Asset is expected to generate 2.06 times less return on investment than Inflation-linked. In addition to that, Western Asset is 1.01 times more volatile than Inflation Linked Fixed Income. It trades about 0.03 of its total potential returns per unit of risk. Inflation Linked Fixed Income is currently generating about 0.06 per unit of volatility. If you would invest 783.00 in Inflation Linked Fixed Income on September 2, 2024 and sell it today you would earn a total of 40.00 from holding Inflation Linked Fixed Income or generate 5.11% 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. Inflation Linked Fixed Income
Performance |
| Timeline |
| Western Asset Diversified |
| Inflation Linked Fixed |
Western Asset and Inflation-linked Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Western Asset and Inflation-linked
The main advantage of trading using opposite Western Asset and Inflation-linked positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Asset position performs unexpectedly, Inflation-linked 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 Inflation-linked will offset losses from the drop in Inflation-linked's long position.| Western Asset vs. Morningstar Unconstrained Allocation | Western Asset vs. Old Westbury Large | Western Asset vs. T Rowe Price | Western Asset vs. Enhanced Large Pany |
| Inflation-linked vs. Emerging Markets Equity | Inflation-linked vs. Global Fixed Income | Inflation-linked vs. Global Fixed Income | Inflation-linked vs. Global Fixed Income |
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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