Correlation Between Western Asset and Fabxx

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

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

Diversification Opportunities for Western Asset and Fabxx

0.17

Correlation Coefficient

Western Asset  Fabxx

Average diversification

The 3 months correlation between Western and Fabxx is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset Municipal and Fabxx in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fabxx 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 Municipal are associated (or correlated) with Fabxx. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fabxx has no effect on the direction of Western Asset i.e., Western Asset and Fabxx go up and down completely randomly.

Pair Corralation between Western Asset and Fabxx

Assuming the 90 days horizon Western Asset Municipal is expected to under-perform the Fabxx. But the mutual fund apears to be less risky and, when comparing its historical volatility, Western Asset Municipal is 67.26 times less risky than Fabxx. The mutual fund trades about -0.03 of its potential returns per unit of risk. The Fabxx is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  250.00  in Fabxx on September 5, 2024 and sell it today you would lose (17.00) from holding Fabxx or give up 6.8% of portfolio value over 90 days.

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

Western Asset Municipal  vs.  Fabxx

Western Asset Municipal

Risk-Adjusted Performance

0 of 100

Very Weak

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

Fabxx

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Fabxx are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Fabxx showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Western Asset and Fabxx

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

The idea behind Western Asset Municipal and Fabxx 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.