Correlation Between Enhanced and Legg Mason

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Can any of the company-specific risk be diversified away by investing in both Enhanced 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 Enhanced and Legg Mason into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Enhanced Large Pany and Legg Mason Bw, you can compare the effects of market volatilities on Enhanced 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 Enhanced with a short position of Legg Mason. Check out your portfolio center. Please also check ongoing floating volatility patterns of Enhanced and Legg Mason.

Diversification Opportunities for Enhanced and Legg Mason

0.95
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Enhanced and Legg is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Enhanced Large Pany and Legg Mason Bw in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Legg Mason Bw and Enhanced 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 Enhanced Large Pany 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 Bw has no effect on the direction of Enhanced i.e., Enhanced and Legg Mason go up and down completely randomly.

Pair Corralation between Enhanced and Legg Mason

Assuming the 90 days horizon Enhanced is expected to generate 1.13 times less return on investment than Legg Mason. In addition to that, Enhanced is 1.1 times more volatile than Legg Mason Bw. It trades about 0.13 of its total potential returns per unit of risk. Legg Mason Bw is currently generating about 0.16 per unit of volatility. If you would invest  2,039  in Legg Mason Bw on September 2, 2024 and sell it today you would earn a total of  349.00  from holding Legg Mason Bw or generate 17.12% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Enhanced Large Pany  vs.  Legg Mason Bw

 Performance 
       Timeline  
Enhanced Large Pany 

Risk-Adjusted Performance

15 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Enhanced Large Pany are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak essential indicators, Enhanced may actually be approaching a critical reversion point that can send shares even higher in January 2025.
Legg Mason Bw 

Risk-Adjusted Performance

13 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Legg Mason Bw are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Legg Mason may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Enhanced and Legg Mason Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Enhanced and Legg Mason

The main advantage of trading using opposite Enhanced and Legg Mason positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Enhanced 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 Enhanced Large Pany and Legg Mason Bw 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.

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