Correlation Between Legg Mason and Aberdeen Gbl

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

Diversification Opportunities for Legg Mason and Aberdeen Gbl

0.2

Correlation Coefficient

Legg Mason  Aberdeen Gbl

Modest diversification

The 3 months correlation between Legg and Aberdeen is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Legg Mason Bw and Aberdeen Gbl Eq in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aberdeen Gbl Eq 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 Aberdeen Gbl. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aberdeen Gbl Eq has no effect on the direction of Legg Mason i.e., Legg Mason and Aberdeen Gbl go up and down completely randomly.

Pair Corralation between Legg Mason and Aberdeen Gbl

Assuming the 90 days horizon Legg Mason Bw is expected to generate 0.82 times more return on investment than Aberdeen Gbl. However, Legg Mason Bw is 1.21 times less risky than Aberdeen Gbl. It trades about 0.06 of its potential returns per unit of risk. Aberdeen Gbl Eq is currently generating about -0.07 per unit of risk. If you would invest  1,997  in Legg Mason Bw on December 29, 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	Very Weak
Accuracy	100.0%
Values	Daily Returns

Legg Mason Bw  vs.  Aberdeen Gbl Eq

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.

Aberdeen Gbl Eq

Risk-Adjusted Performance

Very Weak

Over the last 90 days Aberdeen Gbl Eq has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Aberdeen Gbl 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 Aberdeen Gbl

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

The idea behind Legg Mason Bw and Aberdeen Gbl Eq 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.