Correlation Between Legg Mason and Columbia Emerging

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

Diversification Opportunities for Legg Mason and Columbia Emerging

0.02

Correlation Coefficient

Legg Mason  Columbia Emerging

Significant diversification

The 3 months correlation between Legg and Columbia is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Legg Mason Global and Columbia Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Columbia Emerging Markets 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 Columbia Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Columbia Emerging Markets has no effect on the direction of Legg Mason i.e., Legg Mason and Columbia Emerging go up and down completely randomly.

Pair Corralation between Legg Mason and Columbia Emerging

Assuming the 90 days horizon Legg Mason is expected to generate 2.44 times less return on investment than Columbia Emerging. In addition to that, Legg Mason is 1.08 times more volatile than Columbia Emerging Markets. It trades about 0.07 of its total potential returns per unit of risk. Columbia Emerging Markets is currently generating about 0.17 per unit of volatility. If you would invest  823.00  in Columbia Emerging Markets on October 8, 2024 and sell it today you would earn a total of  131.00  from holding Columbia Emerging Markets or generate 15.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	90.97%
Values	Daily Returns

Legg Mason Global  vs.  Columbia Emerging Markets

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.

Columbia Emerging Markets

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Legg Mason Global and Columbia Emerging Markets 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.