Correlation Between Legg Mason and Short Duration

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

Diversification Opportunities for Legg Mason and Short Duration

0.9

Correlation Coefficient

Legg Mason  Short Duration

Almost no diversification

The 3 months correlation between Legg and Short is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Legg Mason Global and Short Duration Inflation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Short Duration Inflation 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 Short Duration. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Short Duration Inflation has no effect on the direction of Legg Mason i.e., Legg Mason and Short Duration go up and down completely randomly.

Pair Corralation between Legg Mason and Short Duration

Assuming the 90 days horizon Legg Mason Global is expected to generate 1.84 times more return on investment than Short Duration. However, Legg Mason is 1.84 times more volatile than Short Duration Inflation. It trades about 0.2 of its potential returns per unit of risk. Short Duration Inflation is currently generating about 0.2 per unit of risk. If you would invest  948.00  in Legg Mason Global on September 15, 2024 and sell it today you would earn a total of  8.00  from holding Legg Mason Global or generate 0.84% 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 Global  vs.  Short Duration Inflation

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.

Short Duration Inflation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Short Duration Inflation has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Short Duration 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 Short Duration

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

The idea behind Legg Mason Global and Short Duration Inflation 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.