Correlation Between Legg Mason and Gold Portfolio

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

Diversification Opportunities for Legg Mason and Gold Portfolio

0.45

Correlation Coefficient

Legg Mason  Gold Portfolio

Very weak diversification

The 3 months correlation between Legg and Gold is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Legg Mason Partners and Gold Portfolio Fidelity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gold Portfolio Fidelity 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 Gold Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gold Portfolio Fidelity has no effect on the direction of Legg Mason i.e., Legg Mason and Gold Portfolio go up and down completely randomly.

Pair Corralation between Legg Mason and Gold Portfolio

Assuming the 90 days trading horizon Legg Mason is expected to generate 10.09 times less return on investment than Gold Portfolio. But when comparing it to its historical volatility, Legg Mason Partners is 10.38 times less risky than Gold Portfolio. It trades about 0.28 of its potential returns per unit of risk. Gold Portfolio Fidelity is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  2,609  in Gold Portfolio Fidelity on November 29, 2024 and sell it today you would earn a total of  251.00  from holding Gold Portfolio Fidelity or generate 9.62% return on investment over 90 days.

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

Legg Mason Partners  vs.  Gold Portfolio Fidelity

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.

Gold Portfolio Fidelity

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Gold Portfolio Fidelity are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Gold Portfolio may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with Legg Mason and Gold Portfolio

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

The idea behind Legg Mason Partners and Gold Portfolio Fidelity 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.