Correlation Between Legg Mason and Prudential Jennison
Can any of the company-specific risk be diversified away by investing in both Legg Mason and Prudential Jennison 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 Prudential Jennison 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 Prudential Jennison Global, you can compare the effects of market volatilities on Legg Mason and Prudential Jennison 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 Prudential Jennison. Check out your portfolio center. Please also check ongoing floating volatility patterns of Legg Mason and Prudential Jennison.
Diversification Opportunities for Legg Mason and Prudential Jennison
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Legg and Prudential is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Legg Mason Bw and Prudential Jennison Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Jennison 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 Prudential Jennison. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Jennison has no effect on the direction of Legg Mason i.e., Legg Mason and Prudential Jennison go up and down completely randomly.
Pair Corralation between Legg Mason and Prudential Jennison
Assuming the 90 days horizon Legg Mason Bw is expected to generate 1.24 times more return on investment than Prudential Jennison. However, Legg Mason is 1.24 times more volatile than Prudential Jennison Global. It trades about 0.15 of its potential returns per unit of risk. Prudential Jennison Global is currently generating about 0.06 per unit of risk. If you would invest 2,219 in Legg Mason Bw on August 25, 2024 and sell it today you would earn a total of 126.00 from holding Legg Mason Bw or generate 5.68% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Legg Mason Bw vs. Prudential Jennison Global
Performance |
| Timeline |
| Legg Mason Bw |
| Prudential Jennison |
Legg Mason and Prudential Jennison Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Legg Mason and Prudential Jennison
The main advantage of trading using opposite Legg Mason and Prudential Jennison positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Legg Mason position performs unexpectedly, Prudential Jennison 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 Prudential Jennison will offset losses from the drop in Prudential Jennison's long position.| Legg Mason vs. T Rowe Price | Legg Mason vs. Qs Large Cap | Legg Mason vs. Guggenheim Rbp Large Cap | Legg Mason vs. Aqr Large Cap |
| Prudential Jennison vs. Quantitative U S | Prudential Jennison vs. Guggenheim Rbp Large Cap | Prudential Jennison vs. Legg Mason Bw | Prudential Jennison 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 Transaction History module to view history of all your transactions and understand their impact on performance.
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