Correlation Between Legg Mason and Brown Advisory

Can any of the company-specific risk be diversified away by investing in both Legg Mason and Brown Advisory 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 Brown Advisory 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 Brown Advisory Growth, you can compare the effects of market volatilities on Legg Mason and Brown Advisory 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 Brown Advisory. Check out your portfolio center. Please also check ongoing floating volatility patterns of Legg Mason and Brown Advisory.

Diversification Opportunities for Legg Mason and Brown Advisory

0.73

Correlation Coefficient

Legg Mason  Brown Advisory

Poor diversification

The 3 months correlation between Legg and Brown is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Legg Mason Partners and Brown Advisory Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brown Advisory Growth 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 Brown Advisory. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brown Advisory Growth has no effect on the direction of Legg Mason i.e., Legg Mason and Brown Advisory go up and down completely randomly.

Pair Corralation between Legg Mason and Brown Advisory

Assuming the 90 days trading horizon Legg Mason Partners is expected to generate 0.49 times more return on investment than Brown Advisory. However, Legg Mason Partners is 2.05 times less risky than Brown Advisory. It trades about 0.01 of its potential returns per unit of risk. Brown Advisory Growth is currently generating about -0.08 per unit of risk. If you would invest  1,254  in Legg Mason Partners on December 28, 2024 and sell it today you would earn a total of  2.00  from holding Legg Mason Partners or generate 0.16% return on investment over 90 days.

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

Legg Mason Partners  vs.  Brown Advisory Growth

Legg Mason Partners

Risk-Adjusted Performance

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.

Brown Advisory Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days Brown Advisory Growth has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Brown Advisory 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 Brown Advisory

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

The idea behind Legg Mason Partners and Brown Advisory Growth 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.