Correlation Between American Funds and Legg Mason
Can any of the company-specific risk be diversified away by investing in both American Funds 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 Funds 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 Funds American and Legg Mason Bw, you can compare the effects of market volatilities on American Funds 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 Funds with a short position of Legg Mason. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and Legg Mason.
Diversification Opportunities for American Funds and Legg Mason
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between American and Legg is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding American Funds American 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 American Funds 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 Funds American 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 American Funds i.e., American Funds and Legg Mason go up and down completely randomly.
Pair Corralation between American Funds and Legg Mason
Assuming the 90 days horizon American Funds is expected to generate 2.84 times less return on investment than Legg Mason. But when comparing it to its historical volatility, American Funds American is 1.55 times less risky than Legg Mason. It trades about 0.16 of its potential returns per unit of risk. Legg Mason Bw is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest 2,243 in Legg Mason Bw on August 31, 2024 and sell it today you would earn a total of 141.00 from holding Legg Mason Bw or generate 6.29% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Funds American vs. Legg Mason Bw
Performance |
| Timeline |
| American Funds American |
| Legg Mason Bw |
American Funds and Legg Mason Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Funds and Legg Mason
The main advantage of trading using opposite American Funds and Legg Mason positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Funds 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.| American Funds vs. Columbia Real Estate | American Funds vs. Msif Real Estate | American Funds vs. Pender Real Estate | American Funds vs. Amg Managers Centersquare |
| Legg Mason vs. Vanguard Value Index | Legg Mason vs. Dodge Cox Stock | Legg Mason vs. American Mutual Fund | Legg Mason vs. American Funds American |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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