Correlation Between Western Asset and Mfs Diversified

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

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

Diversification Opportunities for Western Asset and Mfs Diversified

0.79

Correlation Coefficient

Western Asset  Mfs Diversified

Poor diversification

The 3 months correlation between Western and Mfs is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset Diversified and Mfs Diversified Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mfs Diversified Income 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 Diversified are associated (or correlated) with Mfs Diversified. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mfs Diversified Income has no effect on the direction of Western Asset i.e., Western Asset and Mfs Diversified go up and down completely randomly.

Pair Corralation between Western Asset and Mfs Diversified

Assuming the 90 days horizon Western Asset Diversified is expected to generate 0.93 times more return on investment than Mfs Diversified. However, Western Asset Diversified is 1.08 times less risky than Mfs Diversified. It trades about -0.21 of its potential returns per unit of risk. Mfs Diversified Income is currently generating about -0.27 per unit of risk. If you would invest  1,537  in Western Asset Diversified on September 26, 2024 and sell it today you would lose (23.00) from holding Western Asset Diversified or give up 1.5% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Western Asset Diversified  vs.  Mfs Diversified Income

Western Asset Diversified

Risk-Adjusted Performance

0 of 100

Very Weak

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

Mfs Diversified Income

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mfs Diversified Income has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical indicators, Mfs Diversified 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 Mfs Diversified

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

The idea behind Western Asset Diversified and Mfs Diversified Income 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.