Correlation Between Adams Natural and Legg Mason

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

By analyzing existing cross correlation between Adams Natural Resources and Legg Mason Partners, you can compare the effects of market volatilities on Adams Natural and Legg Mason 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 Adams Natural with a short position of Legg Mason. Check out your portfolio center. Please also check ongoing floating volatility patterns of Adams Natural and Legg Mason.

Diversification Opportunities for Adams Natural and Legg Mason

0.88

Correlation Coefficient

Adams Natural  Legg Mason

Very poor diversification

The 3 months correlation between Adams and Legg is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Adams Natural Resources and Legg Mason Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Legg Mason Partners and Adams Natural 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 Adams Natural Resources are associated (or correlated) with Legg Mason. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Legg Mason Partners has no effect on the direction of Adams Natural i.e., Adams Natural and Legg Mason go up and down completely randomly.

Pair Corralation between Adams Natural and Legg Mason

Considering the 90-day investment horizon Adams Natural Resources is expected to generate 1.08 times more return on investment than Legg Mason. However, Adams Natural is 1.08 times more volatile than Legg Mason Partners. It trades about 0.08 of its potential returns per unit of risk. Legg Mason Partners is currently generating about 0.03 per unit of risk. If you would invest  1,883  in Adams Natural Resources on October 9, 2024 and sell it today you would earn a total of  354.00  from holding Adams Natural Resources or generate 18.8% return on investment over 90 days.

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

Adams Natural Resources  vs.  Legg Mason Partners

Adams Natural Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Adams Natural Resources has generated negative risk-adjusted returns adding no value to fund investors. In spite of very healthy technical and fundamental indicators, Adams Natural is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Legg Mason Partners

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Legg Mason Partners has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's primary indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Adams Natural and Legg Mason

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

The idea behind Adams Natural Resources and Legg Mason Partners 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.