Correlation Between Legg Mason and Stet Tax-advantaged

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

Diversification Opportunities for Legg Mason and Stet Tax-advantaged

0.68

Correlation Coefficient

Legg Mason  Stet Tax-advantaged

Poor diversification

The 3 months correlation between Legg and Stet is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Legg Mason Partners and Stet Tax Advantaged Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stet Tax Advantaged 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 Stet Tax-advantaged. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stet Tax Advantaged has no effect on the direction of Legg Mason i.e., Legg Mason and Stet Tax-advantaged go up and down completely randomly.

Pair Corralation between Legg Mason and Stet Tax-advantaged

Assuming the 90 days trading horizon Legg Mason Partners is expected to under-perform the Stet Tax-advantaged. In addition to that, Legg Mason is 1.89 times more volatile than Stet Tax Advantaged Income. It trades about -0.07 of its total potential returns per unit of risk. Stet Tax Advantaged Income is currently generating about 0.21 per unit of volatility. If you would invest  928.00  in Stet Tax Advantaged Income on December 2, 2024 and sell it today you would earn a total of  9.00  from holding Stet Tax Advantaged Income or generate 0.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

Legg Mason Partners  vs.  Stet Tax Advantaged Income

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.

Stet Tax Advantaged

Risk-Adjusted Performance

Very Weak

Over the last 90 days Stet Tax Advantaged Income has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Stet Tax-advantaged 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 Stet Tax-advantaged

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

The idea behind Legg Mason Partners and Stet Tax Advantaged Income 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.