Correlation Between Legg Mason and Diversified Bond
Can any of the company-specific risk be diversified away by investing in both Legg Mason and Diversified Bond 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 Diversified Bond 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 Diversified Bond Fund, you can compare the effects of market volatilities on Legg Mason and Diversified Bond 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 Diversified Bond. Check out your portfolio center. Please also check ongoing floating volatility patterns of Legg Mason and Diversified Bond.
Diversification Opportunities for Legg Mason and Diversified Bond
-0.39 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Legg and Diversified is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Legg Mason Partners and Diversified Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diversified Bond 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 Diversified Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diversified Bond has no effect on the direction of Legg Mason i.e., Legg Mason and Diversified Bond go up and down completely randomly.
Pair Corralation between Legg Mason and Diversified Bond
Assuming the 90 days trading horizon Legg Mason Partners is expected to generate 1.2 times more return on investment than Diversified Bond. However, Legg Mason is 1.2 times more volatile than Diversified Bond Fund. It trades about 0.38 of its potential returns per unit of risk. Diversified Bond Fund is currently generating about 0.11 per unit of risk. If you would invest 1,270 in Legg Mason Partners on September 4, 2024 and sell it today you would earn a total of 41.00 from holding Legg Mason Partners or generate 3.23% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Legg Mason Partners vs. Diversified Bond Fund
Performance |
| Timeline |
| Legg Mason Partners |
| Diversified Bond |
Legg Mason and Diversified Bond Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Legg Mason and Diversified Bond
The main advantage of trading using opposite Legg Mason and Diversified Bond positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Legg Mason position performs unexpectedly, Diversified Bond 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 Diversified Bond will offset losses from the drop in Diversified Bond'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 |
| Diversified Bond vs. Mid Cap Value | Diversified Bond vs. Equity Growth Fund | Diversified Bond vs. Income Growth Fund | Diversified Bond vs. Diversified Bond 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..
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