Correlation Between Western Asset and Municipal Bond
Can any of the company-specific risk be diversified away by investing in both Western Asset and Municipal Bond 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 Municipal Bond into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Western Asset Managed and Municipal Bond Fund, you can compare the effects of market volatilities on Western Asset and Municipal Bond 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 Municipal Bond. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Asset and Municipal Bond.
Diversification Opportunities for Western Asset and Municipal Bond
0.91 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Western and Municipal is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset Managed and Municipal Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Municipal Bond 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 Managed are associated (or correlated) with Municipal Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Municipal Bond has no effect on the direction of Western Asset i.e., Western Asset and Municipal Bond go up and down completely randomly.
Pair Corralation between Western Asset and Municipal Bond
Assuming the 90 days horizon Western Asset Managed is expected to under-perform the Municipal Bond. In addition to that, Western Asset is 1.16 times more volatile than Municipal Bond Fund. It trades about -0.2 of its total potential returns per unit of risk. Municipal Bond Fund is currently generating about -0.2 per unit of volatility. If you would invest 976.00 in Municipal Bond Fund on January 20, 2024 and sell it today you would lose (7.00) from holding Municipal Bond Fund or give up 0.72% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 95.45% |
| Values | Daily Returns |
Western Asset Managed vs. Municipal Bond Fund
Performance |
| Timeline |
| Western Asset Managed |
| Municipal Bond |
Western Asset and Municipal Bond Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Western Asset and Municipal Bond
The main advantage of trading using opposite Western Asset and Municipal Bond positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Asset position performs unexpectedly, Municipal Bond 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 Municipal Bond will offset losses from the drop in Municipal Bond's long position.| Western Asset vs. Clearbridge Aggressive Growth | Western Asset vs. Clearbridge Small Cap | Western Asset vs. Qs International Dividend | Western Asset vs. Qs International Dividend |
| Municipal Bond vs. Wells Fargo Advantage | Municipal Bond vs. Wells Fargo Advantage | Municipal Bond vs. Wells Fargo Advantage | Municipal Bond vs. Wells Fargo Advantage |
Check out your portfolio center.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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.
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