Correlation Between Government High and Western Asset

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

By analyzing existing cross correlation between Government High Quality and Western Asset High, you can compare the effects of market volatilities on Government High and Western Asset 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 Government High with a short position of Western Asset. Check out your portfolio center. Please also check ongoing floating volatility patterns of Government High and Western Asset.

Diversification Opportunities for Government High and Western Asset

-0.44

Correlation Coefficient

Government High  Western Asset

Very good diversification

The 3 months correlation between Government and Western is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Government High Quality and Western Asset High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Asset High and Government High 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 Government High Quality are associated (or correlated) with Western Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Asset High has no effect on the direction of Government High i.e., Government High and Western Asset go up and down completely randomly.

Pair Corralation between Government High and Western Asset

Assuming the 90 days horizon Government High is expected to generate 3.06 times less return on investment than Western Asset. In addition to that, Government High is 1.48 times more volatile than Western Asset High. It trades about 0.03 of its total potential returns per unit of risk. Western Asset High is currently generating about 0.12 per unit of volatility. If you would invest  584.00  in Western Asset High on September 12, 2024 and sell it today you would earn a total of  125.00  from holding Western Asset High or generate 21.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Government High Quality  vs.  Western Asset High

Government High Quality

Risk-Adjusted Performance

0 of 100

Very Weak

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

Western Asset High

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Western Asset High are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Western Asset is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Government High and Western Asset

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

The idea behind Government High Quality and Western Asset High 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.

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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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.