Correlation Between Western Asset and US Global

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

Diversification Opportunities for Western Asset and US Global

-0.4
  Correlation Coefficient

Very good diversification

The 3 months correlation between Western and SEA is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset Municipal and US Global Sea in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Global Sea 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 US Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Global Sea has no effect on the direction of Western Asset i.e., Western Asset and US Global go up and down completely randomly.

Pair Corralation between Western Asset and US Global

Assuming the 90 days horizon Western Asset Municipal is expected to generate 0.23 times more return on investment than US Global. However, Western Asset Municipal is 4.29 times less risky than US Global. It trades about -0.07 of its potential returns per unit of risk. US Global Sea is currently generating about -0.03 per unit of risk. If you would invest  734.00  in Western Asset Municipal on December 29, 2023 and sell it today you would lose (2.00) from holding Western Asset Municipal or give up 0.27% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Western Asset Municipal  vs.  US Global Sea

 Performance 
       Timeline  
Western Asset Municipal 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
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.
US Global Sea 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days US Global Sea has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical and fundamental indicators, US Global is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Western Asset and US Global Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Western Asset and US Global

The main advantage of trading using opposite Western Asset and US Global positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Asset position performs unexpectedly, US Global 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 US Global will offset losses from the drop in US Global's long position.
The idea behind Western Asset Municipal and US Global Sea 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.
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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.

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