Correlation Between Moderate Balanced and Legg Mason

Can any of the company-specific risk be diversified away by investing in both Moderate Balanced and Legg Mason 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 Moderate Balanced and Legg Mason into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Moderate Balanced Allocation and Legg Mason Partners, you can compare the effects of market volatilities on Moderate Balanced and Legg Mason 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 Moderate Balanced with a short position of Legg Mason. Check out your portfolio center. Please also check ongoing floating volatility patterns of Moderate Balanced and Legg Mason.

Diversification Opportunities for Moderate Balanced and Legg Mason

0.62

Correlation Coefficient

Moderate Balanced  Legg Mason

Poor diversification

The 3 months correlation between Moderate and Legg is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Moderate Balanced Allocation and Legg Mason Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Legg Mason Partners and Moderate Balanced 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 Moderate Balanced Allocation are associated (or correlated) with Legg Mason. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Legg Mason Partners has no effect on the direction of Moderate Balanced i.e., Moderate Balanced and Legg Mason go up and down completely randomly.

Pair Corralation between Moderate Balanced and Legg Mason

Assuming the 90 days horizon Moderate Balanced Allocation is expected to under-perform the Legg Mason. In addition to that, Moderate Balanced is 1.08 times more volatile than Legg Mason Partners. It trades about -0.06 of its total potential returns per unit of risk. Legg Mason Partners is currently generating about -0.06 per unit of volatility. If you would invest  1,181  in Legg Mason Partners on December 21, 2024 and sell it today you would lose (27.00) from holding Legg Mason Partners or give up 2.29% of portfolio value over 90 days.

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

Moderate Balanced Allocation  vs.  Legg Mason Partners

Moderate Balanced

Risk-Adjusted Performance

Very Weak

Over the last 90 days Moderate Balanced Allocation has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Moderate Balanced is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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.

Pair Trading with Moderate Balanced and Legg Mason

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

The idea behind Moderate Balanced Allocation and Legg Mason Partners 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.