Correlation Between Legg Mason and WisdomTree International

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

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

Diversification Opportunities for Legg Mason and WisdomTree International

0.07

Correlation Coefficient

Legg Mason  WisdomTree International

Significant diversification

The 3 months correlation between Legg and WisdomTree is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Legg Mason Low and WisdomTree International Hedge in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree International 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 Low are associated (or correlated) with WisdomTree International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree International has no effect on the direction of Legg Mason i.e., Legg Mason and WisdomTree International go up and down completely randomly.

Pair Corralation between Legg Mason and WisdomTree International

Given the investment horizon of 90 days Legg Mason is expected to generate 1.33 times less return on investment than WisdomTree International. But when comparing it to its historical volatility, Legg Mason Low is 1.29 times less risky than WisdomTree International. It trades about 0.04 of its potential returns per unit of risk. WisdomTree International Hedged is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  4,476  in WisdomTree International Hedged on September 12, 2024 and sell it today you would earn a total of  69.00  from holding WisdomTree International Hedged or generate 1.54% return on investment over 90 days.

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

Legg Mason Low  vs.  WisdomTree International Hedge

Legg Mason Low

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Legg Mason Low are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical indicators, Legg Mason is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

WisdomTree International

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree International Hedged are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental indicators, WisdomTree International is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Legg Mason and WisdomTree International

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

The idea behind Legg Mason Low and WisdomTree International Hedged 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.