Correlation Between Legg Mason and Schwab Short-term

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

Diversification Opportunities for Legg Mason and Schwab Short-term

0.91

Correlation Coefficient

Legg Mason  Schwab Short-term

Almost no diversification

The 3 months correlation between Legg and Schwab is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Legg Mason Global and Schwab Short Term Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Short Term 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 Short-term. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab Short Term has no effect on the direction of Legg Mason i.e., Legg Mason and Schwab Short-term go up and down completely randomly.

Pair Corralation between Legg Mason and Schwab Short-term

Assuming the 90 days horizon Legg Mason Global is expected to generate 1.38 times more return on investment than Schwab Short-term. However, Legg Mason is 1.38 times more volatile than Schwab Short Term Bond. It trades about 0.18 of its potential returns per unit of risk. Schwab Short Term Bond is currently generating about 0.2 per unit of risk. If you would invest  914.00  in Legg Mason Global on December 28, 2024 and sell it today you would earn a total of  20.00  from holding Legg Mason Global or generate 2.19% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.36%
Values	Daily Returns

Legg Mason Global  vs.  Schwab Short Term Bond

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 13 (%) 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.

Schwab Short Term

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab Short Term Bond are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental drivers, Schwab Short-term 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 Short-term

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

The idea behind Legg Mason Global and Schwab Short Term Bond 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.