Correlation Between SPDR Portfolio and Legg Mason

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

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

Diversification Opportunities for SPDR Portfolio and Legg Mason

0.82

Correlation Coefficient

SPDR Portfolio  Legg Mason

Very poor diversification

The 3 months correlation between SPDR and Legg is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Portfolio SP and Legg Mason Low in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Legg Mason Low and SPDR Portfolio 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 SPDR Portfolio SP 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 Low has no effect on the direction of SPDR Portfolio i.e., SPDR Portfolio and Legg Mason go up and down completely randomly.

Pair Corralation between SPDR Portfolio and Legg Mason

Given the investment horizon of 90 days SPDR Portfolio is expected to generate 1.86 times less return on investment than Legg Mason. But when comparing it to its historical volatility, SPDR Portfolio SP is 1.05 times less risky than Legg Mason. It trades about 0.06 of its potential returns per unit of risk. Legg Mason Low is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  3,467  in Legg Mason Low on December 4, 2024 and sell it today you would earn a total of  635.00  from holding Legg Mason Low or generate 18.32% return on investment over 90 days.

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

SPDR Portfolio SP  vs.  Legg Mason Low

SPDR Portfolio SP

Risk-Adjusted Performance

Very Weak

Over the last 90 days SPDR Portfolio SP has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, SPDR Portfolio is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Legg Mason Low

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Legg Mason Low are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical indicators, Legg Mason is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with SPDR Portfolio and Legg Mason

The main advantage of trading using opposite SPDR Portfolio and Legg Mason positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR Portfolio 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 SPDR Portfolio SP and Legg Mason Low 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 Global Correlations module to find global opportunities by holding instruments from different markets.