Correlation Between Legg Mason and Rational Strategic

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

Diversification Opportunities for Legg Mason and Rational Strategic

0.21

Correlation Coefficient

Legg Mason  Rational Strategic

Modest diversification

The 3 months correlation between Legg and Rational is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Legg Mason Partners and Rational Strategic Allocation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rational Strategic 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 Rational Strategic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rational Strategic has no effect on the direction of Legg Mason i.e., Legg Mason and Rational Strategic go up and down completely randomly.

Pair Corralation between Legg Mason and Rational Strategic

Assuming the 90 days trading horizon Legg Mason Partners is expected to under-perform the Rational Strategic. In addition to that, Legg Mason is 2.18 times more volatile than Rational Strategic Allocation. It trades about -0.26 of its total potential returns per unit of risk. Rational Strategic Allocation is currently generating about -0.2 per unit of volatility. If you would invest  959.00  in Rational Strategic Allocation on October 4, 2024 and sell it today you would lose (97.00) from holding Rational Strategic Allocation or give up 10.11% of portfolio value over 90 days.

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

Legg Mason Partners  vs.  Rational Strategic Allocation

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 weak performance in the last few months, the Fund's primary indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Rational Strategic

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Legg Mason Partners and Rational Strategic Allocation 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.