Correlation Between Versatile Bond and Legg Mason

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

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

Diversification Opportunities for Versatile Bond and Legg Mason

0.87

Correlation Coefficient

Versatile Bond  Legg Mason

Very poor diversification

The 3 months correlation between Versatile and Legg is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Versatile Bond Portfolio 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 Versatile Bond 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 Versatile Bond Portfolio 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 Versatile Bond i.e., Versatile Bond and Legg Mason go up and down completely randomly.

Pair Corralation between Versatile Bond and Legg Mason

Assuming the 90 days horizon Versatile Bond is expected to generate 2.03 times less return on investment than Legg Mason. But when comparing it to its historical volatility, Versatile Bond Portfolio is 1.44 times less risky than Legg Mason. It trades about 0.17 of its potential returns per unit of risk. Legg Mason Partners is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  655.00  in Legg Mason Partners on September 2, 2024 and sell it today you would earn a total of  18.00  from holding Legg Mason Partners or generate 2.75% return on investment over 90 days.

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

Versatile Bond Portfolio  vs.  Legg Mason Partners

Versatile Bond Portfolio

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Versatile Bond Portfolio are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental drivers, Versatile Bond is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Legg Mason Partners

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Legg Mason Partners are ranked lower than 19 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong primary indicators, Legg Mason is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Versatile Bond and Legg Mason

The main advantage of trading using opposite Versatile Bond and Legg Mason positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Versatile Bond 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 Versatile Bond Portfolio 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.

Check out your portfolio center.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.