Correlation Between Western Asset and First Trust

Can any of the company-specific risk be diversified away by investing in both Western Asset and First Trust 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 First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Western Asset Global and First Trust Mortgage, you can compare the effects of market volatilities on Western Asset and First Trust 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 First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Asset and First Trust.

Diversification Opportunities for Western Asset and First Trust

0.74

Correlation Coefficient

Western Asset  First Trust

Poor diversification

The 3 months correlation between Western and First is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset Global and First Trust Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Mortgage 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 Global are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Mortgage has no effect on the direction of Western Asset i.e., Western Asset and First Trust go up and down completely randomly.

Pair Corralation between Western Asset and First Trust

Considering the 90-day investment horizon Western Asset Global is expected to under-perform the First Trust. But the etf apears to be less risky and, when comparing its historical volatility, Western Asset Global is 1.58 times less risky than First Trust. The etf trades about -0.17 of its potential returns per unit of risk. The First Trust Mortgage is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  1,214  in First Trust Mortgage on September 4, 2024 and sell it today you would lose (9.00) from holding First Trust Mortgage or give up 0.74% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Western Asset Global  vs.  First Trust Mortgage

Western Asset Global

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Western Asset Global has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, Western Asset is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

First Trust Mortgage

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Mortgage has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong primary indicators, First Trust is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Western Asset and First Trust

The main advantage of trading using opposite Western Asset and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Asset position performs unexpectedly, First Trust 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 First Trust will offset losses from the drop in First Trust's long position.

The idea behind Western Asset Global and First Trust Mortgage pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.