Correlation Between Legg Mason and Sound Shore

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

Diversification Opportunities for Legg Mason and Sound Shore

-0.41

Correlation Coefficient

Legg Mason  Sound Shore

Very good diversification

The 3 months correlation between Legg and Sound is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Legg Mason Global and Sound Shore Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sound Shore Fund 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 Sound Shore. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sound Shore Fund has no effect on the direction of Legg Mason i.e., Legg Mason and Sound Shore go up and down completely randomly.

Pair Corralation between Legg Mason and Sound Shore

Assuming the 90 days horizon Legg Mason is expected to generate 19.57 times less return on investment than Sound Shore. But when comparing it to its historical volatility, Legg Mason Global is 2.85 times less risky than Sound Shore. It trades about 0.03 of its potential returns per unit of risk. Sound Shore Fund is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  4,626  in Sound Shore Fund on September 3, 2024 and sell it today you would earn a total of  404.00  from holding Sound Shore Fund or generate 8.73% 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 Global  vs.  Sound Shore Fund

Legg Mason Global

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Legg Mason Global are ranked lower than 2 (%) 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.

Sound Shore Fund

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sound Shore Fund are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Sound Shore may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Legg Mason and Sound Shore

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

The idea behind Legg Mason Global and Sound Shore Fund 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.