Correlation Between Western Asset and Short Term
Can any of the company-specific risk be diversified away by investing in both Western Asset and Short Term 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 Short Term 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 Short Term Government Fund, you can compare the effects of market volatilities on Western Asset and Short Term 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 Short Term. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Asset and Short Term.
Diversification Opportunities for Western Asset and Short Term
0.91 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Western and Short is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset Diversified and Short Term Government Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Short Term 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 Diversified are associated (or correlated) with Short Term. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Short Term Government has no effect on the direction of Western Asset i.e., Western Asset and Short Term go up and down completely randomly.
Pair Corralation between Western Asset and Short Term
Assuming the 90 days horizon Western Asset Diversified is expected to generate 2.75 times more return on investment than Short Term. However, Western Asset is 2.75 times more volatile than Short Term Government Fund. It trades about 0.11 of its potential returns per unit of risk. Short Term Government Fund is currently generating about 0.17 per unit of risk. If you would invest 1,545 in Western Asset Diversified on September 13, 2024 and sell it today you would earn a total of 9.00 from holding Western Asset Diversified or generate 0.58% 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. Short Term Government Fund
Performance |
| Timeline |
| Western Asset Diversified |
| Short Term Government |
Western Asset and Short Term Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Western Asset and Short Term
The main advantage of trading using opposite Western Asset and Short Term positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Asset position performs unexpectedly, Short Term 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 Short Term will offset losses from the drop in Short Term'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 |
| Short Term vs. T Rowe Price | Short Term vs. Ambrus Core Bond | Short Term vs. California Bond Fund | Short Term vs. The National Tax Free |
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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