Correlation Between Invesco SP and Legg Mason

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

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

Diversification Opportunities for Invesco SP and Legg Mason

0.59

Correlation Coefficient

Invesco SP  Legg Mason

Very weak diversification

The 3 months correlation between Invesco and Legg is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Invesco SP SmallCap 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 Invesco SP 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 Invesco SP SmallCap 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 Invesco SP i.e., Invesco SP and Legg Mason go up and down completely randomly.

Pair Corralation between Invesco SP and Legg Mason

Given the investment horizon of 90 days Invesco SP SmallCap is expected to generate 1.92 times more return on investment than Legg Mason. However, Invesco SP is 1.92 times more volatile than Legg Mason Low. It trades about 0.1 of its potential returns per unit of risk. Legg Mason Low is currently generating about -0.01 per unit of risk. If you would invest  4,745  in Invesco SP SmallCap on September 13, 2024 and sell it today you would earn a total of  295.00  from holding Invesco SP SmallCap or generate 6.22% return on investment over 90 days.

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

Invesco SP SmallCap  vs.  Legg Mason Low

Invesco SP SmallCap

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco SP SmallCap are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal essential indicators, Invesco SP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Legg Mason Low

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Legg Mason Low has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical indicators, Legg Mason is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Invesco SP and Legg Mason

The main advantage of trading using opposite Invesco SP and Legg Mason positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Invesco SP 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 Invesco SP SmallCap 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.