Correlation Between Legg Mason and Growth Strategy
Can any of the company-specific risk be diversified away by investing in both Legg Mason and Growth Strategy 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 Growth Strategy 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 Growth Strategy Fund, you can compare the effects of market volatilities on Legg Mason and Growth Strategy 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 Growth Strategy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Legg Mason and Growth Strategy.
Diversification Opportunities for Legg Mason and Growth Strategy
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Legg and GROWTH is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Legg Mason Partners and Growth Strategy Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Growth Strategy 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 Growth Strategy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Growth Strategy has no effect on the direction of Legg Mason i.e., Legg Mason and Growth Strategy go up and down completely randomly.
Pair Corralation between Legg Mason and Growth Strategy
Assuming the 90 days trading horizon Legg Mason Partners is expected to generate 1.43 times more return on investment than Growth Strategy. However, Legg Mason is 1.43 times more volatile than Growth Strategy Fund. It trades about 0.34 of its potential returns per unit of risk. Growth Strategy Fund is currently generating about 0.34 per unit of risk. If you would invest 2,336 in Legg Mason Partners on September 4, 2024 and sell it today you would earn a total of 118.00 from holding Legg Mason Partners or generate 5.05% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Legg Mason Partners vs. Growth Strategy Fund
Performance |
| Timeline |
| Legg Mason Partners |
| Growth Strategy |
Legg Mason and Growth Strategy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Legg Mason and Growth Strategy
The main advantage of trading using opposite Legg Mason and Growth Strategy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Legg Mason position performs unexpectedly, Growth Strategy 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 Growth Strategy will offset losses from the drop in Growth Strategy'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 |
| Growth Strategy vs. International Developed Markets | Growth Strategy vs. Global Real Estate | Growth Strategy vs. Global Real Estate | Growth Strategy vs. Global Real Estate |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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