Correlation Between Municipal Bond and Western Asset
Can any of the company-specific risk be diversified away by investing in both Municipal Bond and Western Asset 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 Municipal Bond and Western Asset into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Municipal Bond Fund and Western Asset Managed, you can compare the effects of market volatilities on Municipal Bond and Western Asset 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 Municipal Bond with a short position of Western Asset. Check out your portfolio center. Please also check ongoing floating volatility patterns of Municipal Bond and Western Asset.
Diversification Opportunities for Municipal Bond and Western Asset
0.99 | Correlation Coefficient |
No risk reduction
The 3 months correlation between Municipal and Western is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Municipal Bond Fund and Western Asset Managed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Asset Managed and Municipal Bond 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 Municipal Bond Fund are associated (or correlated) with Western Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Asset Managed has no effect on the direction of Municipal Bond i.e., Municipal Bond and Western Asset go up and down completely randomly.
Pair Corralation between Municipal Bond and Western Asset
Assuming the 90 days horizon Municipal Bond Fund is expected to generate 0.93 times more return on investment than Western Asset. However, Municipal Bond Fund is 1.08 times less risky than Western Asset. It trades about -0.13 of its potential returns per unit of risk. Western Asset Managed is currently generating about -0.2 per unit of risk. If you would invest 974.00 in Municipal Bond Fund on January 26, 2024 and sell it today you would lose (5.00) from holding Municipal Bond Fund or give up 0.51% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Municipal Bond Fund vs. Western Asset Managed
Performance |
| Timeline |
| Municipal Bond |
| Western Asset Managed |
Municipal Bond and Western Asset Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Municipal Bond and Western Asset
The main advantage of trading using opposite Municipal Bond and Western Asset positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Municipal Bond position performs unexpectedly, Western Asset 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 Western Asset will offset losses from the drop in Western Asset's long position.| Municipal Bond vs. Vanguard Long Term Tax Exempt | Municipal Bond vs. Vanguard High Yield Tax Exempt | Municipal Bond vs. Strategic Advisers Municipal |
| Western Asset vs. Vanguard Long Term Tax Exempt | Western Asset vs. Vanguard High Yield Tax Exempt | Western Asset vs. Vanguard High Yield Tax Exempt | Western Asset vs. Strategic Advisers Municipal |
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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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