Correlation Between Legg Mason and Virtus Dfa

Can any of the company-specific risk be diversified away by investing in both Legg Mason and Virtus Dfa 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 Virtus Dfa 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 Virtus Dfa 2040, you can compare the effects of market volatilities on Legg Mason and Virtus Dfa 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 Virtus Dfa. Check out your portfolio center. Please also check ongoing floating volatility patterns of Legg Mason and Virtus Dfa.

Diversification Opportunities for Legg Mason and Virtus Dfa

0.88

Correlation Coefficient

Legg Mason  Virtus Dfa

Very poor diversification

The 3 months correlation between Legg and Virtus is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Legg Mason Partners and Virtus Dfa 2040 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Virtus Dfa 2040 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 Virtus Dfa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Virtus Dfa 2040 has no effect on the direction of Legg Mason i.e., Legg Mason and Virtus Dfa go up and down completely randomly.

Pair Corralation between Legg Mason and Virtus Dfa

Assuming the 90 days trading horizon Legg Mason is expected to generate 33.5 times less return on investment than Virtus Dfa. But when comparing it to its historical volatility, Legg Mason Partners is 1.15 times less risky than Virtus Dfa. It trades about 0.0 of its potential returns per unit of risk. Virtus Dfa 2040 is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,049  in Virtus Dfa 2040 on December 29, 2024 and sell it today you would earn a total of  3.00  from holding Virtus Dfa 2040 or generate 0.29% return on investment over 90 days.

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

Legg Mason Partners  vs.  Virtus Dfa 2040

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.

Virtus Dfa 2040

Risk-Adjusted Performance

Very Weak

Over the last 90 days Virtus Dfa 2040 has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Virtus Dfa 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 Virtus Dfa

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

The idea behind Legg Mason Partners and Virtus Dfa 2040 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.