Correlation Between Procter Gamble and Legg Mason

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

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

Diversification Opportunities for Procter Gamble and Legg Mason

0.75

Correlation Coefficient

Procter Gamble  Legg Mason

Poor diversification

The 3 months correlation between Procter and Legg is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Procter Gamble and Legg Mason Low in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Legg Mason Low and Procter Gamble 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 Procter Gamble 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 Low has no effect on the direction of Procter Gamble i.e., Procter Gamble and Legg Mason go up and down completely randomly.

Pair Corralation between Procter Gamble and Legg Mason

Allowing for the 90-day total investment horizon Procter Gamble is expected to under-perform the Legg Mason. In addition to that, Procter Gamble is 1.6 times more volatile than Legg Mason Low. It trades about -0.01 of its total potential returns per unit of risk. Legg Mason Low is currently generating about 0.1 per unit of volatility. If you would invest  3,854  in Legg Mason Low on December 26, 2024 and sell it today you would earn a total of  189.00  from holding Legg Mason Low or generate 4.9% return on investment over 90 days.

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

Procter Gamble  vs.  Legg Mason Low

Procter Gamble

Risk-Adjusted Performance

Very Weak

Over the last 90 days Procter Gamble has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Procter Gamble is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Legg Mason Low

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Legg Mason Low are ranked lower than 8 (%) 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.

Pair Trading with Procter Gamble and Legg Mason

The main advantage of trading using opposite Procter Gamble and Legg Mason positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Procter Gamble 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 Procter Gamble and Legg Mason Low 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.