Correlation Between Legg Mason and Franklin Lifesmart

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

By analyzing existing cross correlation between Legg Mason Partners and Franklin Lifesmart 2030, you can compare the effects of market volatilities on Legg Mason and Franklin Lifesmart 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 Franklin Lifesmart. Check out your portfolio center. Please also check ongoing floating volatility patterns of Legg Mason and Franklin Lifesmart.

Diversification Opportunities for Legg Mason and Franklin Lifesmart

0.92

Correlation Coefficient

Legg Mason  Franklin Lifesmart

Almost no diversification

The 3 months correlation between Legg and Franklin is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Legg Mason Partners and Franklin Lifesmart 2030 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Lifesmart 2030 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 Partners are associated (or correlated) with Franklin Lifesmart. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Lifesmart 2030 has no effect on the direction of Legg Mason i.e., Legg Mason and Franklin Lifesmart go up and down completely randomly.

Pair Corralation between Legg Mason and Franklin Lifesmart

Assuming the 90 days trading horizon Legg Mason Partners is expected to generate 1.13 times more return on investment than Franklin Lifesmart. However, Legg Mason is 1.13 times more volatile than Franklin Lifesmart 2030. It trades about 0.09 of its potential returns per unit of risk. Franklin Lifesmart 2030 is currently generating about 0.08 per unit of risk. If you would invest  1,241  in Legg Mason Partners on October 22, 2024 and sell it today you would earn a total of  165.00  from holding Legg Mason Partners or generate 13.3% return on investment over 90 days.

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

Legg Mason Partners  vs.  Franklin Lifesmart 2030

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 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.

Franklin Lifesmart 2030

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Franklin Lifesmart 2030 has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Franklin Lifesmart is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Legg Mason and Franklin Lifesmart

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

The idea behind Legg Mason Partners and Franklin Lifesmart 2030 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.