Correlation Between International Equity and Western Asset

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

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

Diversification Opportunities for International Equity and Western Asset

-0.56

Correlation Coefficient

International Equity  Western Asset

Excellent diversification

The 3 months correlation between International and Western is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding International Equity Series and Western Asset Adjustable in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Asset Adjustable and International Equity 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 International Equity Series 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 Adjustable has no effect on the direction of International Equity i.e., International Equity and Western Asset go up and down completely randomly.

Pair Corralation between International Equity and Western Asset

Assuming the 90 days horizon International Equity Series is expected to under-perform the Western Asset. In addition to that, International Equity is 24.2 times more volatile than Western Asset Adjustable. It trades about -0.18 of its total potential returns per unit of risk. Western Asset Adjustable is currently generating about 0.19 per unit of volatility. If you would invest  908.00  in Western Asset Adjustable on September 29, 2024 and sell it today you would earn a total of  8.00  from holding Western Asset Adjustable or generate 0.88% return on investment over 90 days.

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

International Equity Series  vs.  Western Asset Adjustable

International Equity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days International Equity Series has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Western Asset Adjustable

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Western Asset Adjustable are ranked lower than 15 (%) 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 International Equity and Western Asset

The main advantage of trading using opposite International Equity and Western Asset positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Equity 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 International Equity Series and Western Asset Adjustable 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.