Correlation Between Prudential Government and Legg Mason
Can any of the company-specific risk be diversified away by investing in both Prudential Government and Legg Mason 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 Prudential Government and Legg Mason into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Prudential Government Money and Legg Mason Partners, you can compare the effects of market volatilities on Prudential Government and Legg Mason 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 Prudential Government with a short position of Legg Mason. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prudential Government and Legg Mason.
Diversification Opportunities for Prudential Government and Legg Mason
1.0 | Correlation Coefficient |
No risk reduction
The 3 months correlation between Prudential and Legg is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Government Money and Legg Mason Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Legg Mason Partners and Prudential Government 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 Prudential Government Money are associated (or correlated) with Legg Mason. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Legg Mason Partners has no effect on the direction of Prudential Government i.e., Prudential Government and Legg Mason go up and down completely randomly.
Pair Corralation between Prudential Government and Legg Mason
Assuming the 90 days horizon Prudential Government is expected to generate 1.25 times less return on investment than Legg Mason. But when comparing it to its historical volatility, Prudential Government Money is 1.5 times less risky than Legg Mason. It trades about 0.04 of its potential returns per unit of risk. Legg Mason Partners is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 93.00 in Legg Mason Partners on August 31, 2024 and sell it today you would earn a total of 7.00 from holding Legg Mason Partners or generate 7.53% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 98.51% |
| Values | Daily Returns |
Prudential Government Money vs. Legg Mason Partners
Performance |
| Timeline |
| Prudential Government |
| Legg Mason Partners |
Prudential Government and Legg Mason Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Prudential Government and Legg Mason
The main advantage of trading using opposite Prudential Government and Legg Mason positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Prudential Government position performs unexpectedly, Legg Mason 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 Legg Mason will offset losses from the drop in Legg Mason's long position.| Prudential Government vs. T Rowe Price | Prudential Government vs. Volumetric Fund Volumetric | Prudential Government vs. Vanguard Small Cap Growth | Prudential Government vs. Falcon Focus Scv |
| Legg Mason vs. Vanguard Total Stock | Legg Mason vs. Vanguard 500 Index | Legg Mason vs. Vanguard Total Stock | Legg Mason vs. Vanguard Total Stock |
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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