Correlation Between Western Asset and Government Securities
Can any of the company-specific risk be diversified away by investing in both Western Asset and Government Securities 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 Government Securities 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 Government Securities Fund, you can compare the effects of market volatilities on Western Asset and Government Securities 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 Government Securities. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Asset and Government Securities.
Diversification Opportunities for Western Asset and Government Securities
0.9 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Western and Government is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset Diversified and Government Securities Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 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 Government Securities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Government Securities has no effect on the direction of Western Asset i.e., Western Asset and Government Securities go up and down completely randomly.
Pair Corralation between Western Asset and Government Securities
Assuming the 90 days horizon Western Asset Diversified is expected to under-perform the Government Securities. But the mutual fund apears to be less risky and, when comparing its historical volatility, Western Asset Diversified is 1.0 times less risky than Government Securities. The mutual fund trades about -0.03 of its potential returns per unit of risk. The Government Securities Fund is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest 887.00 in Government Securities Fund on September 13, 2024 and sell it today you would lose (3.00) from holding Government Securities Fund or give up 0.34% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Western Asset Diversified vs. Government Securities Fund
Performance |
| Timeline |
| Western Asset Diversified |
| Government Securities |
Western Asset and Government Securities Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Western Asset and Government Securities
The main advantage of trading using opposite Western Asset and Government Securities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Asset position performs unexpectedly, Government Securities 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 Government Securities will offset losses from the drop in Government Securities' 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 |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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