Correlation Between Legg Mason and Invesco Income

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

Diversification Opportunities for Legg Mason and Invesco Income

0.33

Correlation Coefficient

Legg Mason  Invesco Income

Weak diversification

The 3 months correlation between Legg and Invesco is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Legg Mason Partners and Invesco Income Allocation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Income Allocation 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 Invesco Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Income Allocation has no effect on the direction of Legg Mason i.e., Legg Mason and Invesco Income go up and down completely randomly.

Pair Corralation between Legg Mason and Invesco Income

Assuming the 90 days trading horizon Legg Mason Partners is expected to under-perform the Invesco Income. In addition to that, Legg Mason is 3.74 times more volatile than Invesco Income Allocation. It trades about -0.05 of its total potential returns per unit of risk. Invesco Income Allocation is currently generating about 0.03 per unit of volatility. If you would invest  1,047  in Invesco Income Allocation on December 29, 2024 and sell it today you would earn a total of  6.00  from holding Invesco Income Allocation or generate 0.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

Legg Mason Partners  vs.  Invesco Income Allocation

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.

Invesco Income Allocation

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco Income Allocation are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Invesco Income 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 Invesco Income

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

The idea behind Legg Mason Partners and Invesco Income 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.