Correlation Between Legg Mason and Transportation Fund

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

Diversification Opportunities for Legg Mason and Transportation Fund

-0.65

Correlation Coefficient

Legg Mason  Transportation Fund

Excellent diversification

The 3 months correlation between Legg and Transportation is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Legg Mason Global and Transportation Fund Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transportation Fund Class 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 Transportation Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transportation Fund Class has no effect on the direction of Legg Mason i.e., Legg Mason and Transportation Fund go up and down completely randomly.

Pair Corralation between Legg Mason and Transportation Fund

Assuming the 90 days horizon Legg Mason Global is expected to generate 0.16 times more return on investment than Transportation Fund. However, Legg Mason Global is 6.13 times less risky than Transportation Fund. It trades about 0.19 of its potential returns per unit of risk. Transportation Fund Class is currently generating about -0.19 per unit of risk. If you would invest  914.00  in Legg Mason Global on December 24, 2024 and sell it today you would earn a total of  21.00  from holding Legg Mason Global or generate 2.3% return on investment over 90 days.

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

Legg Mason Global  vs.  Transportation Fund Class

Legg Mason Global

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Legg Mason Global are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. 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.

Transportation Fund Class

Risk-Adjusted Performance

Very Weak

Over the last 90 days Transportation Fund Class has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Legg Mason and Transportation Fund

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

The idea behind Legg Mason Global and Transportation Fund Class 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.