Correlation Between Legg Mason and Northern
Can any of the company-specific risk be diversified away by investing in both Legg Mason and Northern 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 Northern into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Legg Mason Bw and Northern Quality Esg, you can compare the effects of market volatilities on Legg Mason and Northern 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 Northern. Check out your portfolio center. Please also check ongoing floating volatility patterns of Legg Mason and Northern.
Diversification Opportunities for Legg Mason and Northern
0.96 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Legg and Northern is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Legg Mason Bw and Northern Quality Esg in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Quality Esg 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 Bw are associated (or correlated) with Northern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Quality Esg has no effect on the direction of Legg Mason i.e., Legg Mason and Northern go up and down completely randomly.
Pair Corralation between Legg Mason and Northern
Assuming the 90 days horizon Legg Mason is expected to generate 1.03 times less return on investment than Northern. But when comparing it to its historical volatility, Legg Mason Bw is 1.06 times less risky than Northern. It trades about 0.12 of its potential returns per unit of risk. Northern Quality Esg is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 1,584 in Northern Quality Esg on September 4, 2024 and sell it today you would earn a total of 615.00 from holding Northern Quality Esg or generate 38.83% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Legg Mason Bw vs. Northern Quality Esg
Performance |
| Timeline |
| Legg Mason Bw |
| Northern Quality Esg |
Legg Mason and Northern Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Legg Mason and Northern
The main advantage of trading using opposite Legg Mason and Northern positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Legg Mason position performs unexpectedly, Northern 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 Northern will offset losses from the drop in Northern's long position.| Legg Mason vs. Clearbridge Aggressive Growth | Legg Mason vs. Clearbridge Small Cap | Legg Mason vs. Qs International Equity | Legg Mason vs. Clearbridge Appreciation Fund |
| Northern vs. Prudential Core Conservative | Northern vs. Massmutual Select Diversified | Northern vs. Pgim Conservative Retirement | Northern vs. Aqr Diversified Arbitrage |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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