Correlation Between Legg Mason and Washington Mutual
Can any of the company-specific risk be diversified away by investing in both Legg Mason and Washington Mutual 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 Washington Mutual 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 Washington Mutual Investors, you can compare the effects of market volatilities on Legg Mason and Washington Mutual 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 Washington Mutual. Check out your portfolio center. Please also check ongoing floating volatility patterns of Legg Mason and Washington Mutual.
Diversification Opportunities for Legg Mason and Washington Mutual
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Legg and Washington is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Legg Mason Global and Washington Mutual Investors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Washington Mutual 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 Washington Mutual. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Washington Mutual has no effect on the direction of Legg Mason i.e., Legg Mason and Washington Mutual go up and down completely randomly.
Pair Corralation between Legg Mason and Washington Mutual
Assuming the 90 days horizon Legg Mason is expected to generate 4.05 times less return on investment than Washington Mutual. But when comparing it to its historical volatility, Legg Mason Global is 2.72 times less risky than Washington Mutual. It trades about 0.27 of its potential returns per unit of risk. Washington Mutual Investors is currently generating about 0.41 of returns per unit of risk over similar time horizon. If you would invest 6,154 in Washington Mutual Investors on October 29, 2024 and sell it today you would earn a total of 276.00 from holding Washington Mutual Investors or generate 4.48% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Legg Mason Global vs. Washington Mutual Investors
Performance |
| Timeline |
| Legg Mason Global |
| Washington Mutual |
Legg Mason and Washington Mutual Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Legg Mason and Washington Mutual
The main advantage of trading using opposite Legg Mason and Washington Mutual positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Legg Mason position performs unexpectedly, Washington Mutual 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 Washington Mutual will offset losses from the drop in Washington Mutual's long position.| Legg Mason vs. Versatile Bond Portfolio | Legg Mason vs. Artisan High Income | Legg Mason vs. Blrc Sgy Mnp | Legg Mason vs. Ab Bond Inflation |
| Washington Mutual vs. Growth Fund Of | Washington Mutual vs. Europacific Growth Fund | Washington Mutual vs. American Balanced Fund | Washington Mutual vs. Smallcap World Fund |
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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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