Correlation Between Legal General and MG Plc

Can any of the company-specific risk be diversified away by investing in both Legal General and MG Plc 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 Legal General and MG Plc into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Legal General Group and MG Plc, you can compare the effects of market volatilities on Legal General and MG Plc 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 Legal General with a short position of MG Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of Legal General and MG Plc.

Diversification Opportunities for Legal General and MG Plc

0.94

Correlation Coefficient

Legal General  MG Plc

Almost no diversification

The 3 months correlation between Legal and MNG is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Legal General Group and MG Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MG Plc and Legal General 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 Legal General Group are associated (or correlated) with MG Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MG Plc has no effect on the direction of Legal General i.e., Legal General and MG Plc go up and down completely randomly.

Pair Corralation between Legal General and MG Plc

Assuming the 90 days trading horizon Legal General is expected to generate 1.4 times less return on investment than MG Plc. In addition to that, Legal General is 1.02 times more volatile than MG Plc. It trades about 0.1 of its total potential returns per unit of risk. MG Plc is currently generating about 0.14 per unit of volatility. If you would invest  18,361  in MG Plc on December 29, 2024 and sell it today you would earn a total of  1,979  from holding MG Plc or generate 10.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Legal General Group  vs.  MG Plc

Legal General Group

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Legal General Group are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Legal General may actually be approaching a critical reversion point that can send shares even higher in April 2025.

MG Plc

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MG Plc are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, MG Plc may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Legal General and MG Plc

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

The idea behind Legal General Group and MG Plc 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.