Correlation Between Legg Mason and Strategic Allocation:

Can any of the company-specific risk be diversified away by investing in both Legg Mason and Strategic Allocation: 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 Strategic Allocation: 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 Strategic Allocation Aggressive, you can compare the effects of market volatilities on Legg Mason and Strategic Allocation: 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 Strategic Allocation:. Check out your portfolio center. Please also check ongoing floating volatility patterns of Legg Mason and Strategic Allocation:.

Diversification Opportunities for Legg Mason and Strategic Allocation:

0.89

Correlation Coefficient

Legg Mason  Strategic Allocation:

Very poor diversification

The 3 months correlation between Legg and Strategic is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Legg Mason Bw and Strategic Allocation Aggressiv in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Strategic Allocation: 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 Strategic Allocation:. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Strategic Allocation: has no effect on the direction of Legg Mason i.e., Legg Mason and Strategic Allocation: go up and down completely randomly.

Pair Corralation between Legg Mason and Strategic Allocation:

Assuming the 90 days horizon Legg Mason Bw is expected to generate 1.11 times more return on investment than Strategic Allocation:. However, Legg Mason is 1.11 times more volatile than Strategic Allocation Aggressive. It trades about 0.06 of its potential returns per unit of risk. Strategic Allocation Aggressive is currently generating about -0.02 per unit of risk. If you would invest  1,997  in Legg Mason Bw on December 30, 2024 and sell it today you would earn a total of  52.00  from holding Legg Mason Bw or generate 2.6% return on investment over 90 days.

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

Legg Mason Bw  vs.  Strategic Allocation Aggressiv

Legg Mason Bw

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Legg Mason Bw are ranked lower than 4 (%) 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.

Strategic Allocation:

Risk-Adjusted Performance

Very Weak

Over the last 90 days Strategic Allocation Aggressive has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Strategic Allocation: 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 Strategic Allocation:

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

The idea behind Legg Mason Bw and Strategic Allocation Aggressive 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.