Correlation Between Legg Mason and Dow Jones
Can any of the company-specific risk be diversified away by investing in both Legg Mason and Dow Jones 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 Legg Mason and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Legg Mason Partners and Dow Jones Industrial, you can compare the effects of market volatilities on Legg Mason and Dow Jones 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 Legg Mason with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of Legg Mason and Dow Jones.
Diversification Opportunities for Legg Mason and Dow Jones
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Legg and Dow is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Legg Mason Partners and Dow Jones Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dow Jones Industrial and Legg Mason 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 Legg Mason Partners are associated (or correlated) with Dow Jones. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dow Jones Industrial has no effect on the direction of Legg Mason i.e., Legg Mason and Dow Jones go up and down completely randomly.
Pair Corralation between Legg Mason and Dow Jones
Assuming the 90 days horizon Legg Mason Partners is expected to generate 39.56 times more return on investment than Dow Jones. However, Legg Mason is 39.56 times more volatile than Dow Jones Industrial. It trades about 0.05 of its potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.13 per unit of risk. If you would invest 95.00 in Legg Mason Partners on September 2, 2024 and sell it today you would earn a total of 5.00 from holding Legg Mason Partners or generate 5.26% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Legg Mason Partners vs. Dow Jones Industrial
Performance |
| Timeline |
Legg Mason and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
Legg Mason Partners
Pair trading matchups for Legg Mason
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with Legg Mason and Dow Jones
The main advantage of trading using opposite Legg Mason and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Legg Mason position performs unexpectedly, Dow Jones 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 Dow Jones will offset losses from the drop in Dow Jones' long position.| Legg Mason vs. Aqr Managed Futures | Legg Mason vs. Fidelity Advisor 529 | Legg Mason vs. American Funds Inflation | Legg Mason vs. Ab Bond Inflation |
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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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