Correlation Between Legg Mason and Oklahoma Municipal

Can any of the company-specific risk be diversified away by investing in both Legg Mason and Oklahoma Municipal 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 Oklahoma Municipal into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Legg Mason Bw and Oklahoma Municipal Fund, you can compare the effects of market volatilities on Legg Mason and Oklahoma Municipal 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 Oklahoma Municipal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Legg Mason and Oklahoma Municipal.

Diversification Opportunities for Legg Mason and Oklahoma Municipal

0.9

Correlation Coefficient

Legg Mason  Oklahoma Municipal

Almost no diversification

The 3 months correlation between Legg and Oklahoma is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Legg Mason Bw and Oklahoma Municipal Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oklahoma Municipal 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 Bw are associated (or correlated) with Oklahoma Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oklahoma Municipal has no effect on the direction of Legg Mason i.e., Legg Mason and Oklahoma Municipal go up and down completely randomly.

Pair Corralation between Legg Mason and Oklahoma Municipal

Assuming the 90 days horizon Legg Mason Bw is expected to under-perform the Oklahoma Municipal. In addition to that, Legg Mason is 1.5 times more volatile than Oklahoma Municipal Fund. It trades about -0.04 of its total potential returns per unit of risk. Oklahoma Municipal Fund is currently generating about -0.02 per unit of volatility. If you would invest  1,060  in Oklahoma Municipal Fund on November 29, 2024 and sell it today you would lose (4.00) from holding Oklahoma Municipal Fund or give up 0.38% of portfolio value over 90 days.

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

Legg Mason Bw  vs.  Oklahoma Municipal Fund

Legg Mason Bw

Risk-Adjusted Performance

Very Weak

Over the last 90 days Legg Mason Bw 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.

Oklahoma Municipal

Risk-Adjusted Performance

Very Weak

Over the last 90 days Oklahoma Municipal Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Oklahoma Municipal 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 Oklahoma Municipal

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

The idea behind Legg Mason Bw and Oklahoma Municipal 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.