Correlation Between Western Asset and Hartford Inflation

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

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

Diversification Opportunities for Western Asset and Hartford Inflation

0.98

Correlation Coefficient

Western Asset  Hartford Inflation

Almost no diversification

The 3 months correlation between Western and Hartford is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset Inflation and The Hartford Inflation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on The Hartford Inflation 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 Inflation are associated (or correlated) with Hartford Inflation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of The Hartford Inflation has no effect on the direction of Western Asset i.e., Western Asset and Hartford Inflation go up and down completely randomly.

Pair Corralation between Western Asset and Hartford Inflation

Assuming the 90 days horizon Western Asset Inflation is expected to under-perform the Hartford Inflation. In addition to that, Western Asset is 1.45 times more volatile than The Hartford Inflation. It trades about -0.02 of its total potential returns per unit of risk. The Hartford Inflation is currently generating about -0.03 per unit of volatility. If you would invest  1,006  in The Hartford Inflation on September 3, 2024 and sell it today you would lose (4.00) from holding The Hartford Inflation or give up 0.4% of portfolio value over 90 days.

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

Western Asset Inflation  vs.  The Hartford Inflation

Western Asset Inflation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Western Asset Inflation has generated negative risk-adjusted returns adding no value to fund investors. 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.

The Hartford Inflation

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Western Asset Inflation and The Hartford Inflation 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.