Correlation Between Legg Mason and Alger Midcap

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

By analyzing existing cross correlation between Legg Mason Global and Alger Midcap Growth, you can compare the effects of market volatilities on Legg Mason and Alger Midcap 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 Alger Midcap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Legg Mason and Alger Midcap.

Diversification Opportunities for Legg Mason and Alger Midcap

-0.37

Correlation Coefficient

Legg Mason  Alger Midcap

Very good diversification

The 3 months correlation between Legg and Alger is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Legg Mason Global and Alger Midcap Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alger Midcap Growth 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 Global are associated (or correlated) with Alger Midcap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alger Midcap Growth has no effect on the direction of Legg Mason i.e., Legg Mason and Alger Midcap go up and down completely randomly.

Pair Corralation between Legg Mason and Alger Midcap

Assuming the 90 days horizon Legg Mason is expected to generate 7.37 times less return on investment than Alger Midcap. But when comparing it to its historical volatility, Legg Mason Global is 4.08 times less risky than Alger Midcap. It trades about 0.06 of its potential returns per unit of risk. Alger Midcap Growth is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,277  in Alger Midcap Growth on September 17, 2024 and sell it today you would earn a total of  352.00  from holding Alger Midcap Growth or generate 27.56% return on investment over 90 days.

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

Legg Mason Global  vs.  Alger Midcap Growth

Legg Mason Global

Risk-Adjusted Performance

0 of 100

Very Weak

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

Alger Midcap Growth

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Alger Midcap Growth are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Alger Midcap showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Legg Mason and Alger Midcap

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

The idea behind Legg Mason Global and Alger Midcap Growth 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.