Correlation Between Legg Mason and Schwab Target

Can any of the company-specific risk be diversified away by investing in both Legg Mason and Schwab Target 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 Schwab Target 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 Schwab Target 2065, you can compare the effects of market volatilities on Legg Mason and Schwab Target 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 Schwab Target. Check out your portfolio center. Please also check ongoing floating volatility patterns of Legg Mason and Schwab Target.

Diversification Opportunities for Legg Mason and Schwab Target

-0.22

Correlation Coefficient

Legg Mason  Schwab Target

Very good diversification

The 3 months correlation between Legg and Schwab is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Legg Mason Global and Schwab Target 2065 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Target 2065 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 Schwab Target. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab Target 2065 has no effect on the direction of Legg Mason i.e., Legg Mason and Schwab Target go up and down completely randomly.

Pair Corralation between Legg Mason and Schwab Target

Assuming the 90 days horizon Legg Mason is expected to generate 3.53 times less return on investment than Schwab Target. But when comparing it to its historical volatility, Legg Mason Global is 2.04 times less risky than Schwab Target. It trades about 0.06 of its potential returns per unit of risk. Schwab Target 2065 is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  817.00  in Schwab Target 2065 on September 12, 2024 and sell it today you would earn a total of  367.00  from holding Schwab Target 2065 or generate 44.92% 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.  Schwab Target 2065

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.

Schwab Target 2065

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab Target 2065 are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Schwab Target 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 Schwab Target

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

The idea behind Legg Mason Global and Schwab Target 2065 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.