Correlation Between American Beacon and Legg Mason

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

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

Diversification Opportunities for American Beacon and Legg Mason

-0.35

Correlation Coefficient

American Beacon  Legg Mason

Very good diversification

The 3 months correlation between American and Legg is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding American Beacon Twentyfour and Legg Mason Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Legg Mason Global and American Beacon 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 American Beacon Twentyfour 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 Global has no effect on the direction of American Beacon i.e., American Beacon and Legg Mason go up and down completely randomly.

Pair Corralation between American Beacon and Legg Mason

Assuming the 90 days horizon American Beacon is expected to generate 1.03 times less return on investment than Legg Mason. But when comparing it to its historical volatility, American Beacon Twentyfour is 1.89 times less risky than Legg Mason. It trades about 0.1 of its potential returns per unit of risk. Legg Mason Global is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  898.00  in Legg Mason Global on September 12, 2024 and sell it today you would earn a total of  62.00  from holding Legg Mason Global or generate 6.9% return on investment over 90 days.

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

American Beacon Twentyfour  vs.  Legg Mason Global

American Beacon Twen

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in American Beacon Twentyfour are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, American Beacon is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Legg Mason Global

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Legg Mason Global has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental 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 American Beacon and Legg Mason

The main advantage of trading using opposite American Beacon and Legg Mason positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Beacon 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 American Beacon Twentyfour and Legg Mason Global 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.