Correlation Between Legg Mason and Vanguard Value

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

Diversification Opportunities for Legg Mason and Vanguard Value

0.83

Correlation Coefficient

Legg Mason  Vanguard Value

Very poor diversification

The 3 months correlation between Legg and Vanguard is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Legg Mason Low and Vanguard Value Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Value Index 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 Vanguard Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Value Index has no effect on the direction of Legg Mason i.e., Legg Mason and Vanguard Value go up and down completely randomly.

Pair Corralation between Legg Mason and Vanguard Value

Given the investment horizon of 90 days Legg Mason is expected to generate 1.56 times less return on investment than Vanguard Value. In addition to that, Legg Mason is 1.1 times more volatile than Vanguard Value Index. It trades about 0.06 of its total potential returns per unit of risk. Vanguard Value Index is currently generating about 0.1 per unit of volatility. If you would invest  12,711  in Vanguard Value Index on December 4, 2024 and sell it today you would earn a total of  4,938  from holding Vanguard Value Index or generate 38.85% return on investment over 90 days.

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

Legg Mason Low  vs.  Vanguard Value Index

Legg Mason Low

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Legg Mason Low are ranked lower than 4 (%) 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 recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Vanguard Value Index

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Value Index has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Vanguard Value is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Legg Mason and Vanguard Value

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

The idea behind Legg Mason Low and Vanguard Value Index 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.