Correlation Between Western Asset and Ultrashort Japan

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

By analyzing existing cross correlation between Western Asset New and Ultrashort Japan Profund, you can compare the effects of market volatilities on Western Asset and Ultrashort Japan 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 Ultrashort Japan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Asset and Ultrashort Japan.

Diversification Opportunities for Western Asset and Ultrashort Japan

0.19

Correlation Coefficient

Western Asset  Ultrashort Japan

Average diversification

The 3 months correlation between Western and Ultrashort is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset New and Ultrashort Japan Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ultrashort Japan Profund 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 New are associated (or correlated) with Ultrashort Japan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ultrashort Japan Profund has no effect on the direction of Western Asset i.e., Western Asset and Ultrashort Japan go up and down completely randomly.

Pair Corralation between Western Asset and Ultrashort Japan

Assuming the 90 days horizon Western Asset New is expected to generate 0.06 times more return on investment than Ultrashort Japan. However, Western Asset New is 15.88 times less risky than Ultrashort Japan. It trades about -0.03 of its potential returns per unit of risk. Ultrashort Japan Profund is currently generating about -0.1 per unit of risk. If you would invest  1,127  in Western Asset New on May 6, 2025 and sell it today you would lose (3.00) from holding Western Asset New or give up 0.27% of portfolio value over 90 days.

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

Western Asset New  vs.  Ultrashort Japan Profund

Western Asset New

Risk-Adjusted Performance

Very Weak

Over the last 90 days Western Asset New has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong essential indicators, Western Asset is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Ultrashort Japan Profund

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ultrashort Japan Profund has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's forward indicators remain fairly strong which may send shares a bit higher in September 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Western Asset and Ultrashort Japan

The main advantage of trading using opposite Western Asset and Ultrashort Japan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Asset position performs unexpectedly, Ultrashort Japan 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 Ultrashort Japan will offset losses from the drop in Ultrashort Japan's long position.

The idea behind Western Asset New and Ultrashort Japan Profund 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.