Correlation Between FlexShares Quality and Legg Mason

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

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

Diversification Opportunities for FlexShares Quality and Legg Mason

-0.14

Correlation Coefficient

FlexShares Quality  Legg Mason

Good diversification

The 3 months correlation between FlexShares and Legg is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding FlexShares Quality Dividend 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 FlexShares Quality 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 FlexShares Quality Dividend 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 FlexShares Quality i.e., FlexShares Quality and Legg Mason go up and down completely randomly.

Pair Corralation between FlexShares Quality and Legg Mason

Considering the 90-day investment horizon FlexShares Quality Dividend is expected to under-perform the Legg Mason. In addition to that, FlexShares Quality is 1.07 times more volatile than Legg Mason Low. It trades about -0.04 of its total potential returns per unit of risk. Legg Mason Low is currently generating about 0.13 per unit of volatility. If you would invest  3,816  in Legg Mason Low on December 28, 2024 and sell it today you would earn a total of  229.00  from holding Legg Mason Low or generate 6.0% return on investment over 90 days.

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

FlexShares Quality Dividend  vs.  Legg Mason Low

FlexShares Quality

Risk-Adjusted Performance

Very Weak

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

Legg Mason Low

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Legg Mason Low are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent technical indicators, Legg Mason may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with FlexShares Quality and Legg Mason

The main advantage of trading using opposite FlexShares Quality and Legg Mason positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FlexShares Quality 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 FlexShares Quality Dividend 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 Anywhere module to track or share privately all of your investments from the convenience of any device.