Correlation Between Alcoa Corp and Legg Mason
Can any of the company-specific risk be diversified away by investing in both Alcoa Corp 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 Alcoa Corp and Legg Mason into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Alcoa Corp and Legg Mason Partners, you can compare the effects of market volatilities on Alcoa Corp 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 Alcoa Corp with a short position of Legg Mason. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alcoa Corp and Legg Mason.
Diversification Opportunities for Alcoa Corp and Legg Mason
0.94 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Alcoa and Legg is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp 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 Alcoa Corp 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 Alcoa Corp 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 Alcoa Corp i.e., Alcoa Corp and Legg Mason go up and down completely randomly.
Pair Corralation between Alcoa Corp and Legg Mason
Allowing for the 90-day total investment horizon Alcoa Corp is expected to generate 4.87 times more return on investment than Legg Mason. However, Alcoa Corp is 4.87 times more volatile than Legg Mason Partners. It trades about 0.04 of its potential returns per unit of risk. Legg Mason Partners is currently generating about 0.17 per unit of risk. If you would invest 4,235 in Alcoa Corp on September 3, 2024 and sell it today you would earn a total of 408.00 from holding Alcoa Corp or generate 9.63% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Alcoa Corp vs. Legg Mason Partners
Performance |
| Timeline |
| Alcoa Corp |
| Legg Mason Partners |
Alcoa Corp and Legg Mason Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Alcoa Corp and Legg Mason
The main advantage of trading using opposite Alcoa Corp and Legg Mason positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alcoa Corp 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 Alcoa Corp 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.| Legg Mason vs. Vanguard Total Stock | Legg Mason vs. Vanguard 500 Index | Legg Mason vs. Vanguard Total Stock | Legg Mason vs. Vanguard Total Stock |
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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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