Correlation Between Legg Mason and American Funds
Can any of the company-specific risk be diversified away by investing in both Legg Mason and American Funds 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 American Funds 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 American Funds Strategic, you can compare the effects of market volatilities on Legg Mason and American Funds 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 American Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Legg Mason and American Funds.
Diversification Opportunities for Legg Mason and American Funds
-0.68 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Legg and American is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Legg Mason Partners and American Funds Strategic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds Strategic 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 American Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Funds Strategic has no effect on the direction of Legg Mason i.e., Legg Mason and American Funds go up and down completely randomly.
Pair Corralation between Legg Mason and American Funds
Assuming the 90 days trading horizon Legg Mason Partners is expected to generate 1.81 times more return on investment than American Funds. However, Legg Mason is 1.81 times more volatile than American Funds Strategic. It trades about 0.17 of its potential returns per unit of risk. American Funds Strategic is currently generating about -0.18 per unit of risk. If you would invest 1,554 in Legg Mason Partners on September 3, 2024 and sell it today you would earn a total of 68.00 from holding Legg Mason Partners or generate 4.38% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Legg Mason Partners vs. American Funds Strategic
Performance |
| Timeline |
| Legg Mason Partners |
| American Funds Strategic |
Legg Mason and American Funds Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Legg Mason and American Funds
The main advantage of trading using opposite Legg Mason and American Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Legg Mason position performs unexpectedly, American Funds 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 American Funds will offset losses from the drop in American Funds' long position.| Legg Mason vs. Avantis Large Cap | Legg Mason vs. Qs Large Cap | Legg Mason vs. Americafirst Large Cap | Legg Mason vs. Dana Large Cap |
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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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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