Correlation Between Legg Mason and Capital Income
Can any of the company-specific risk be diversified away by investing in both Legg Mason and Capital Income 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 Capital Income into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Legg Mason Partners and Capital Income Builder, you can compare the effects of market volatilities on Legg Mason and Capital Income 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 Capital Income. Check out your portfolio center. Please also check ongoing floating volatility patterns of Legg Mason and Capital Income.
Diversification Opportunities for Legg Mason and Capital Income
0.0 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Legg and Capital is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Legg Mason Partners and Capital Income Builder in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Income Builder 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 Partners are associated (or correlated) with Capital Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital Income Builder has no effect on the direction of Legg Mason i.e., Legg Mason and Capital Income go up and down completely randomly.
Pair Corralation between Legg Mason and Capital Income
Assuming the 90 days horizon Legg Mason is expected to generate 1.37 times less return on investment than Capital Income. In addition to that, Legg Mason is 1.62 times more volatile than Capital Income Builder. It trades about 0.02 of its total potential returns per unit of risk. Capital Income Builder is currently generating about 0.05 per unit of volatility. If you would invest 6,136 in Capital Income Builder on October 23, 2024 and sell it today you would earn a total of 859.00 from holding Capital Income Builder or generate 14.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Flat |
| Strength | Insignificant |
| Accuracy | 99.4% |
| Values | Daily Returns |
Legg Mason Partners vs. Capital Income Builder
Performance |
| Timeline |
| Legg Mason Partners |
| Capital Income Builder |
Legg Mason and Capital Income Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Legg Mason and Capital Income
The main advantage of trading using opposite Legg Mason and Capital Income positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Legg Mason position performs unexpectedly, Capital Income 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 Capital Income will offset losses from the drop in Capital Income's long position.| Legg Mason vs. Vanguard Total Stock | Legg Mason vs. Vanguard 500 Index | Legg Mason vs. Vanguard Total Stock | Legg Mason vs. Vanguard Total Stock |
| Capital Income vs. Legg Mason Partners | Capital Income vs. Artisan Developing World | Capital Income vs. Ab All Market | Capital Income vs. Oklahoma College Savings |
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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