Correlation Between Inflation Protected and Legg Mason
Can any of the company-specific risk be diversified away by investing in both Inflation Protected 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 Inflation Protected and Legg Mason into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Inflation Protected Bond Fund and Legg Mason Bw, you can compare the effects of market volatilities on Inflation Protected 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 Inflation Protected with a short position of Legg Mason. Check out your portfolio center. Please also check ongoing floating volatility patterns of Inflation Protected and Legg Mason.
Diversification Opportunities for Inflation Protected and Legg Mason
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Inflation and Legg is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Inflation Protected Bond Fund 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 Inflation Protected 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 Inflation Protected Bond Fund 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 Inflation Protected i.e., Inflation Protected and Legg Mason go up and down completely randomly.
Pair Corralation between Inflation Protected and Legg Mason
Assuming the 90 days horizon Inflation Protected Bond Fund is expected to generate 0.55 times more return on investment than Legg Mason. However, Inflation Protected Bond Fund is 1.82 times less risky than Legg Mason. It trades about 0.15 of its potential returns per unit of risk. Legg Mason Bw is currently generating about -0.08 per unit of risk. If you would invest 1,024 in Inflation Protected Bond Fund on September 12, 2024 and sell it today you would earn a total of 10.00 from holding Inflation Protected Bond Fund or generate 0.98% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Inflation Protected Bond Fund vs. Legg Mason Bw
Performance |
| Timeline |
| Inflation Protected |
| Legg Mason Bw |
Inflation Protected and Legg Mason Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Inflation Protected and Legg Mason
The main advantage of trading using opposite Inflation Protected and Legg Mason positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Inflation Protected 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.| Inflation Protected vs. Aqr Large Cap | Inflation Protected vs. Pace Large Growth | Inflation Protected vs. Old Westbury Large | Inflation Protected vs. Rational Strategic Allocation |
| Legg Mason vs. Pace Large Growth | Legg Mason vs. T Rowe Price | Legg Mason vs. Aqr Large Cap | Legg Mason vs. T Rowe Price |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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