Correlation Between Western Asset and Short-term Fund

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

By analyzing existing cross correlation between Western Asset Adjustable and Short Term Fund A, you can compare the effects of market volatilities on Western Asset and Short-term Fund 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 Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Asset and Short-term Fund.

Diversification Opportunities for Western Asset and Short-term Fund

0.99

Correlation Coefficient

Western Asset  Short-term Fund

No risk reduction

The 3 months correlation between Western and Short-term is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset Adjustable and Short Term Fund A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Short Term Fund 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 Adjustable are associated (or correlated) with Short-term Fund. 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 Fund has no effect on the direction of Western Asset i.e., Western Asset and Short-term Fund go up and down completely randomly.

Pair Corralation between Western Asset and Short-term Fund

Assuming the 90 days horizon Western Asset Adjustable is expected to generate 0.82 times more return on investment than Short-term Fund. However, Western Asset Adjustable is 1.22 times less risky than Short-term Fund. It trades about 0.24 of its potential returns per unit of risk. Short Term Fund A is currently generating about 0.19 per unit of risk. If you would invest  902.00  in Western Asset Adjustable on September 2, 2024 and sell it today you would earn a total of  10.00  from holding Western Asset Adjustable or generate 1.11% 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 Adjustable  vs.  Short Term Fund A

Western Asset Adjustable

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Western Asset Adjustable are ranked lower than 19 (%) 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.

Short Term Fund

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Short Term Fund A are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Short-term Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Western Asset and Short-term Fund

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

The idea behind Western Asset Adjustable and Short Term Fund A 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.