Correlation Between Western Asset and Nuveen High

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

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

Diversification Opportunities for Western Asset and Nuveen High

0.68

Correlation Coefficient

Western Asset  Nuveen High

Poor diversification

The 3 months correlation between WESTERN and Nuveen is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset Managed and Nuveen High Yield in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nuveen High Yield 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 Managed are associated (or correlated) with Nuveen High. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nuveen High Yield has no effect on the direction of Western Asset i.e., Western Asset and Nuveen High go up and down completely randomly.

Pair Corralation between Western Asset and Nuveen High

Assuming the 90 days horizon Western Asset is expected to generate 2.06 times less return on investment than Nuveen High. But when comparing it to its historical volatility, Western Asset Managed is 1.37 times less risky than Nuveen High. It trades about 0.2 of its potential returns per unit of risk. Nuveen High Yield is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  1,467  in Nuveen High Yield on August 31, 2024 and sell it today you would earn a total of  47.00  from holding Nuveen High Yield or generate 3.2% return on investment over 90 days.

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

Western Asset Managed  vs.  Nuveen High Yield

Western Asset Managed

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Western Asset Managed are ranked lower than 3 (%) 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.

Nuveen High Yield

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nuveen High Yield has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Nuveen High 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 Nuveen High

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

The idea behind Western Asset Managed and Nuveen High Yield 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.