Correlation Between Bank of America and Legg Mason
Can any of the company-specific risk be diversified away by investing in both Bank of America 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 Bank of America and Legg Mason into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Bank of America and Legg Mason Partners, you can compare the effects of market volatilities on Bank of America 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 Bank of America with a short position of Legg Mason. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and Legg Mason.
Diversification Opportunities for Bank of America and Legg Mason
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Bank and Legg is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America 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 Bank of America 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 Bank of America 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 Bank of America i.e., Bank of America and Legg Mason go up and down completely randomly.
Pair Corralation between Bank of America and Legg Mason
Considering the 90-day investment horizon Bank of America is expected to generate 1.36 times more return on investment than Legg Mason. However, Bank of America is 1.36 times more volatile than Legg Mason Partners. It trades about 0.06 of its potential returns per unit of risk. Legg Mason Partners is currently generating about 0.06 per unit of risk. If you would invest 3,278 in Bank of America on September 3, 2024 and sell it today you would earn a total of 1,473 from holding Bank of America or generate 44.94% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Bank of America vs. Legg Mason Partners
Performance |
| Timeline |
| Bank of America |
| Legg Mason Partners |
Bank of America and Legg Mason Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and Legg Mason
The main advantage of trading using opposite Bank of America and Legg Mason positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America 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.| Bank of America vs. Partner Communications | Bank of America vs. Merck Company | Bank of America vs. Western Midstream Partners | Bank of America vs. Edgewise Therapeutics |
| 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.
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