Correlation Between Alphabet and Legg Mason

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

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

Diversification Opportunities for Alphabet and Legg Mason

-0.39

Correlation Coefficient

Alphabet  Legg Mason

Very good diversification

The 3 months correlation between Alphabet and Legg is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C and Legg Mason Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Legg Mason Partners and Alphabet 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 Alphabet Inc Class C 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 Partners has no effect on the direction of Alphabet i.e., Alphabet and Legg Mason go up and down completely randomly.

Pair Corralation between Alphabet and Legg Mason

Given the investment horizon of 90 days Alphabet Inc Class C is expected to under-perform the Legg Mason. In addition to that, Alphabet is 11.63 times more volatile than Legg Mason Partners. It trades about -0.14 of its total potential returns per unit of risk. Legg Mason Partners is currently generating about 0.13 per unit of volatility. If you would invest  1,049  in Legg Mason Partners on December 21, 2024 and sell it today you would earn a total of  13.00  from holding Legg Mason Partners or generate 1.24% return on investment over 90 days.

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

Alphabet Inc Class C  vs.  Legg Mason Partners

Alphabet Class C

Risk-Adjusted Performance

Very Weak

Over the last 90 days Alphabet Inc Class C has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Legg Mason Partners

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Legg Mason Partners are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Legg Mason is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Alphabet and Legg Mason

The main advantage of trading using opposite Alphabet and Legg Mason positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alphabet 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 Alphabet Inc Class C and Legg Mason Partners 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.