Correlation Between IShares Core and Western Asset

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

By analyzing existing cross correlation between iShares Core Total and Western Asset Short, you can compare the effects of market volatilities on IShares Core 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 IShares Core with a short position of Western Asset. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Core and Western Asset.

Diversification Opportunities for IShares Core and Western Asset

0.62

Correlation Coefficient

IShares Core  Western Asset

Poor diversification

The 3 months correlation between IShares and Western is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core Total and Western Asset Short in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Asset Short and IShares Core 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 iShares Core Total 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 Short has no effect on the direction of IShares Core i.e., IShares Core and Western Asset go up and down completely randomly.

Pair Corralation between IShares Core and Western Asset

Given the investment horizon of 90 days IShares Core is expected to generate 1.38 times less return on investment than Western Asset. In addition to that, IShares Core is 2.05 times more volatile than Western Asset Short. It trades about 0.04 of its total potential returns per unit of risk. Western Asset Short is currently generating about 0.12 per unit of volatility. If you would invest  2,154  in Western Asset Short on August 30, 2024 and sell it today you would earn a total of  254.00  from holding Western Asset Short or generate 11.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

iShares Core Total  vs.  Western Asset Short

iShares Core Total

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Core Total has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, IShares Core is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Western Asset Short

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Western Asset Short are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Western Asset is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with IShares Core and Western Asset

The main advantage of trading using opposite IShares Core and Western Asset positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Core 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.

The idea behind iShares Core Total and Western Asset Short 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.