Correlation Between Legg Mason and Heartland Value

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

Diversification Opportunities for Legg Mason and Heartland Value

0.95

Correlation Coefficient

Legg Mason  Heartland Value

Almost no diversification

The 3 months correlation between Legg and Heartland is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Legg Mason Bw and Heartland Value Plus in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heartland Value Plus 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 Heartland Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heartland Value Plus has no effect on the direction of Legg Mason i.e., Legg Mason and Heartland Value go up and down completely randomly.

Pair Corralation between Legg Mason and Heartland Value

Assuming the 90 days horizon Legg Mason Bw is expected to generate 0.68 times more return on investment than Heartland Value. However, Legg Mason Bw is 1.46 times less risky than Heartland Value. It trades about 0.08 of its potential returns per unit of risk. Heartland Value Plus is currently generating about 0.02 per unit of risk. If you would invest  1,742  in Legg Mason Bw on September 5, 2024 and sell it today you would earn a total of  632.00  from holding Legg Mason Bw or generate 36.28% return on investment over 90 days.

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

Legg Mason Bw  vs.  Heartland Value Plus

Legg Mason Bw

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Legg Mason Bw are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Legg Mason may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Heartland Value Plus

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Heartland Value Plus are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Heartland Value may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Legg Mason and Heartland Value

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

The idea behind Legg Mason Bw and Heartland Value Plus 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.

Check out your portfolio center.

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.