Correlation Between Rational Defensive and Legg Mason

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

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

Diversification Opportunities for Rational Defensive and Legg Mason

0.95

Correlation Coefficient

Rational Defensive  Legg Mason

Almost no diversification

The 3 months correlation between Rational and Legg is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Rational Defensive Growth 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 Rational Defensive 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 Rational Defensive Growth 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 Rational Defensive i.e., Rational Defensive and Legg Mason go up and down completely randomly.

Pair Corralation between Rational Defensive and Legg Mason

Assuming the 90 days horizon Rational Defensive Growth is expected to under-perform the Legg Mason. But the mutual fund apears to be less risky and, when comparing its historical volatility, Rational Defensive Growth is 1.03 times less risky than Legg Mason. The mutual fund trades about -0.1 of its potential returns per unit of risk. The Legg Mason Partners is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  2,549  in Legg Mason Partners on December 29, 2024 and sell it today you would lose (170.00) from holding Legg Mason Partners or give up 6.67% of portfolio value over 90 days.

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

Rational Defensive Growth  vs.  Legg Mason Partners

Rational Defensive Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days Rational Defensive Growth has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Legg Mason Partners

Risk-Adjusted Performance

Very Weak

Over the last 90 days Legg Mason Partners has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's primary indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Rational Defensive and Legg Mason

The main advantage of trading using opposite Rational Defensive and Legg Mason positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rational Defensive 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 Rational Defensive Growth 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.