Correlation Between Western Asset and Johnson Institutional

Can any of the company-specific risk be diversified away by investing in both Western Asset and Johnson Institutional 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 Johnson Institutional 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 Johnson Institutional E, you can compare the effects of market volatilities on Western Asset and Johnson Institutional 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 Johnson Institutional. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Asset and Johnson Institutional.

Diversification Opportunities for Western Asset and Johnson Institutional

0.91

Correlation Coefficient

Western Asset  Johnson Institutional

Almost no diversification

The 3 months correlation between Western and Johnson is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset Municipal and Johnson Institutional E in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Institutional 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 Johnson Institutional. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Johnson Institutional has no effect on the direction of Western Asset i.e., Western Asset and Johnson Institutional go up and down completely randomly.

Pair Corralation between Western Asset and Johnson Institutional

Assuming the 90 days horizon Western Asset Municipal is expected to generate 0.81 times more return on investment than Johnson Institutional. However, Western Asset Municipal is 1.23 times less risky than Johnson Institutional. It trades about -0.1 of its potential returns per unit of risk. Johnson Institutional E is currently generating about -0.16 per unit of risk. If you would invest  740.00  in Western Asset Municipal on September 16, 2024 and sell it today you would lose (13.00) from holding Western Asset Municipal or give up 1.76% 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 Municipal  vs.  Johnson Institutional E

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.

Johnson Institutional

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Johnson Institutional E has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Johnson Institutional 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 Johnson Institutional

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

The idea behind Western Asset Municipal and Johnson Institutional E 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.