Correlation Between First Trust and Legg Mason

Can any of the company-specific risk be diversified away by investing in both First Trust and Legg Mason 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 First Trust and Legg Mason into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between First Trust Value and Legg Mason Low, you can compare the effects of market volatilities on First Trust and Legg Mason 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 First Trust with a short position of Legg Mason. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Legg Mason.

Diversification Opportunities for First Trust and Legg Mason

0.9

Correlation Coefficient

First Trust  Legg Mason

Almost no diversification

The 3 months correlation between First and Legg is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Value and Legg Mason Low in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Legg Mason Low and First Trust 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 First Trust Value are associated (or correlated) with Legg Mason. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Legg Mason Low has no effect on the direction of First Trust i.e., First Trust and Legg Mason go up and down completely randomly.

Pair Corralation between First Trust and Legg Mason

Considering the 90-day investment horizon First Trust is expected to generate 3.51 times less return on investment than Legg Mason. But when comparing it to its historical volatility, First Trust Value is 1.05 times less risky than Legg Mason. It trades about 0.02 of its potential returns per unit of risk. Legg Mason Low is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  3,854  in Legg Mason Low on December 26, 2024 and sell it today you would earn a total of  143.00  from holding Legg Mason Low or generate 3.71% return on investment over 90 days.

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

First Trust Value  vs.  Legg Mason Low

First Trust Value

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Value are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, First Trust is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Legg Mason Low

Risk-Adjusted Performance

Modest

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

Pair Trading with First Trust and Legg Mason

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

The idea behind First Trust Value and Legg Mason Low 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.