Correlation Between Western Asset and Vanguard 500
Can any of the company-specific risk be diversified away by investing in both Western Asset and Vanguard 500 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 Vanguard 500 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Western Asset Mortgage and Vanguard 500 Index, you can compare the effects of market volatilities on Western Asset and Vanguard 500 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 Vanguard 500. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Asset and Vanguard 500.
Diversification Opportunities for Western Asset and Vanguard 500
-0.02 | Correlation Coefficient |
Good diversification
The 3 months correlation between Western and Vanguard is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset Mortgage and Vanguard 500 Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard 500 Index 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 Mortgage are associated (or correlated) with Vanguard 500. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard 500 Index has no effect on the direction of Western Asset i.e., Western Asset and Vanguard 500 go up and down completely randomly.
Pair Corralation between Western Asset and Vanguard 500
Assuming the 90 days horizon Western Asset Mortgage is expected to under-perform the Vanguard 500. But the mutual fund apears to be less risky and, when comparing its historical volatility, Western Asset Mortgage is 3.73 times less risky than Vanguard 500. The mutual fund trades about -0.1 of its potential returns per unit of risk. The Vanguard 500 Index is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 37,176 in Vanguard 500 Index on January 25, 2024 and sell it today you would earn a total of 9,646 from holding Vanguard 500 Index or generate 25.95% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Western Asset Mortgage vs. Vanguard 500 Index
Performance |
| Timeline |
| Western Asset Mortgage |
| Vanguard 500 Index |
Western Asset and Vanguard 500 Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Western Asset and Vanguard 500
The main advantage of trading using opposite Western Asset and Vanguard 500 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Asset position performs unexpectedly, Vanguard 500 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 Vanguard 500 will offset losses from the drop in Vanguard 500's long position.| Western Asset vs. Vanguard Total Stock | Western Asset vs. Vanguard 500 Index | Western Asset vs. Vanguard Total Stock | Western Asset vs. Vanguard Total Stock |
| Vanguard 500 vs. Vanguard Mid Cap Index | Vanguard 500 vs. Vanguard Small Cap Index | Vanguard 500 vs. Vanguard Total Bond | Vanguard 500 vs. Vanguard Total International |
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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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