Correlation Between Legg Mason and Litman Gregory

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

Diversification Opportunities for Legg Mason and Litman Gregory

-0.43

Correlation Coefficient

Legg Mason  Litman Gregory

Very good diversification

The 3 months correlation between Legg and Litman is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Legg Mason Bw and Litman Gregory Masters in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Litman Gregory Masters 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 Litman Gregory. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Litman Gregory Masters has no effect on the direction of Legg Mason i.e., Legg Mason and Litman Gregory go up and down completely randomly.

Pair Corralation between Legg Mason and Litman Gregory

Assuming the 90 days horizon Legg Mason Bw is expected to under-perform the Litman Gregory. In addition to that, Legg Mason is 11.05 times more volatile than Litman Gregory Masters. It trades about -0.07 of its total potential returns per unit of risk. Litman Gregory Masters is currently generating about 0.19 per unit of volatility. If you would invest  978.00  in Litman Gregory Masters on October 23, 2024 and sell it today you would earn a total of  15.00  from holding Litman Gregory Masters or generate 1.53% return on investment over 90 days.

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

Legg Mason Bw  vs.  Litman Gregory Masters

Legg Mason Bw

Risk-Adjusted Performance

0 of 100

Very Weak

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

Litman Gregory Masters

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Litman Gregory Masters are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Litman Gregory 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 Litman Gregory

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

The idea behind Legg Mason Bw and Litman Gregory Masters 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.