Correlation Between Legg Mason and Profunds Ultrashort

Can any of the company-specific risk be diversified away by investing in both Legg Mason and Profunds Ultrashort 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 Profunds Ultrashort 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 Profunds Ultrashort Nasdaq 100, you can compare the effects of market volatilities on Legg Mason and Profunds Ultrashort 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 Profunds Ultrashort. Check out your portfolio center. Please also check ongoing floating volatility patterns of Legg Mason and Profunds Ultrashort.

Diversification Opportunities for Legg Mason and Profunds Ultrashort

-0.9

Correlation Coefficient

Legg Mason  Profunds Ultrashort

Pay attention - limited upside

The 3 months correlation between Legg and ProFunds is -0.9. Overlapping area represents the amount of risk that can be diversified away by holding Legg Mason Partners and Profunds Ultrashort Nasdaq 100 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Profunds Ultrashort 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 Profunds Ultrashort. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Profunds Ultrashort has no effect on the direction of Legg Mason i.e., Legg Mason and Profunds Ultrashort go up and down completely randomly.

Pair Corralation between Legg Mason and Profunds Ultrashort

Assuming the 90 days trading horizon Legg Mason Partners is expected to generate 0.29 times more return on investment than Profunds Ultrashort. However, Legg Mason Partners is 3.49 times less risky than Profunds Ultrashort. It trades about 0.16 of its potential returns per unit of risk. Profunds Ultrashort Nasdaq 100 is currently generating about -0.07 per unit of risk. If you would invest  2,308  in Legg Mason Partners on August 30, 2024 and sell it today you would earn a total of  152.00  from holding Legg Mason Partners or generate 6.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Legg Mason Partners  vs.  Profunds Ultrashort Nasdaq 100

Legg Mason Partners

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Legg Mason Partners are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak primary indicators, Legg Mason may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Profunds Ultrashort

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Profunds Ultrashort Nasdaq 100 has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Legg Mason and Profunds Ultrashort

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

The idea behind Legg Mason Partners and Profunds Ultrashort Nasdaq 100 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.