Correlation Between GM and Legg Mason
Can any of the company-specific risk be diversified away by investing in both GM 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 GM and Legg Mason into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Legg Mason Low, you can compare the effects of market volatilities on GM 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 GM with a short position of Legg Mason. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Legg Mason.
Diversification Opportunities for GM and Legg Mason
0.25 | Correlation Coefficient |
Modest diversification
The 3 months correlation between GM and Legg is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding General Motors 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 GM 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 General Motors 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 GM i.e., GM and Legg Mason go up and down completely randomly.
Pair Corralation between GM and Legg Mason
Allowing for the 90-day total investment horizon General Motors is expected to generate 5.07 times more return on investment than Legg Mason. However, GM is 5.07 times more volatile than Legg Mason Low. It trades about 0.17 of its potential returns per unit of risk. Legg Mason Low is currently generating about 0.36 per unit of risk. If you would invest 5,076 in General Motors on September 1, 2024 and sell it today you would earn a total of 483.00 from holding General Motors or generate 9.52% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Legg Mason Low
Performance |
| Timeline |
| General Motors |
| Legg Mason Low |
GM and Legg Mason Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Legg Mason
The main advantage of trading using opposite GM and Legg Mason positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM 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 General Motors 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.| Legg Mason vs. iShares Core SP | Legg Mason vs. iShares Core MSCI | Legg Mason vs. iShares Broad USD | Legg Mason vs. iShares Core SP |
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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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