Correlation Between Legg Mason and Real Assets

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

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

Diversification Opportunities for Legg Mason and Real Assets

0.39

Correlation Coefficient

Legg Mason  Real Assets

Weak diversification

The 3 months correlation between Legg and Real is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Legg Mason Bw and Real Assets Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Real Assets Portfolio and Legg Mason 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 Legg Mason Bw are associated (or correlated) with Real Assets. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Real Assets Portfolio has no effect on the direction of Legg Mason i.e., Legg Mason and Real Assets go up and down completely randomly.

Pair Corralation between Legg Mason and Real Assets

Assuming the 90 days horizon Legg Mason Bw is expected to generate 2.26 times more return on investment than Real Assets. However, Legg Mason is 2.26 times more volatile than Real Assets Portfolio. It trades about 0.26 of its potential returns per unit of risk. Real Assets Portfolio is currently generating about 0.49 per unit of risk. If you would invest  2,003  in Legg Mason Bw on October 21, 2024 and sell it today you would earn a total of  75.00  from holding Legg Mason Bw or generate 3.74% return on investment over 90 days.

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

Legg Mason Bw  vs.  Real Assets Portfolio

Legg Mason Bw

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Legg Mason Bw are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Legg Mason is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Real Assets Portfolio

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Legg Mason and Real Assets

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

The idea behind Legg Mason Bw and Real Assets Portfolio 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.