Correlation Between Legg Mason and Regional Bank
Can any of the company-specific risk be diversified away by investing in both Legg Mason and Regional Bank 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 Regional Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Legg Mason Global and Regional Bank Fund, you can compare the effects of market volatilities on Legg Mason and Regional Bank 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 Regional Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Legg Mason and Regional Bank.
Diversification Opportunities for Legg Mason and Regional Bank
0.62 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Legg and Regional is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Legg Mason Global and Regional Bank Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Regional Bank 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 Global are associated (or correlated) with Regional Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Regional Bank has no effect on the direction of Legg Mason i.e., Legg Mason and Regional Bank go up and down completely randomly.
Pair Corralation between Legg Mason and Regional Bank
Assuming the 90 days horizon Legg Mason is expected to generate 5.05 times less return on investment than Regional Bank. But when comparing it to its historical volatility, Legg Mason Global is 6.64 times less risky than Regional Bank. It trades about 0.23 of its potential returns per unit of risk. Regional Bank Fund is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest 2,844 in Regional Bank Fund on November 7, 2024 and sell it today you would earn a total of 139.00 from holding Regional Bank Fund or generate 4.89% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Legg Mason Global vs. Regional Bank Fund
Performance |
| Timeline |
| Legg Mason Global |
| Regional Bank |
Legg Mason and Regional Bank Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Legg Mason and Regional Bank
The main advantage of trading using opposite Legg Mason and Regional Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Legg Mason position performs unexpectedly, Regional Bank 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 Regional Bank will offset losses from the drop in Regional Bank's long position.| Legg Mason vs. Hennessy Bp Energy | Legg Mason vs. Short Oil Gas | Legg Mason vs. Salient Mlp Energy | Legg Mason vs. Adams Natural Resources |
| Regional Bank vs. 1919 Financial Services | Regional Bank vs. Putnam Global Financials | Regional Bank vs. Angel Oak Financial | Regional Bank vs. Prudential Financial Services |
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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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