Correlation Between Legg Mason and Power Dividend
Can any of the company-specific risk be diversified away by investing in both Legg Mason and Power Dividend 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 Power Dividend 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 Power Dividend Index, you can compare the effects of market volatilities on Legg Mason and Power Dividend 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 Power Dividend. Check out your portfolio center. Please also check ongoing floating volatility patterns of Legg Mason and Power Dividend.
Diversification Opportunities for Legg Mason and Power Dividend
0.94 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Legg and Power is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Legg Mason Partners and Power Dividend Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Power Dividend Index 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 Power Dividend. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Power Dividend Index has no effect on the direction of Legg Mason i.e., Legg Mason and Power Dividend go up and down completely randomly.
Pair Corralation between Legg Mason and Power Dividend
Assuming the 90 days trading horizon Legg Mason Partners is expected to generate 0.93 times more return on investment than Power Dividend. However, Legg Mason Partners is 1.07 times less risky than Power Dividend. It trades about 0.14 of its potential returns per unit of risk. Power Dividend Index is currently generating about 0.13 per unit of risk. If you would invest 1,274 in Legg Mason Partners on September 2, 2024 and sell it today you would earn a total of 348.00 from holding Legg Mason Partners or generate 27.32% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Legg Mason Partners vs. Power Dividend Index
Performance |
| Timeline |
| Legg Mason Partners |
| Power Dividend Index |
Legg Mason and Power Dividend Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Legg Mason and Power Dividend
The main advantage of trading using opposite Legg Mason and Power Dividend positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Legg Mason position performs unexpectedly, Power Dividend 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 Power Dividend will offset losses from the drop in Power Dividend'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 |
| Power Dividend vs. California High Yield Municipal | Power Dividend vs. Needham Aggressive Growth | Power Dividend vs. Legg Mason Partners | Power Dividend vs. Metropolitan West High |
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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