Correlation Between Legg Mason and Tax Exempt
Can any of the company-specific risk be diversified away by investing in both Legg Mason and Tax Exempt 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 Tax Exempt 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 Tax Exempt Bond, you can compare the effects of market volatilities on Legg Mason and Tax Exempt 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 Tax Exempt. Check out your portfolio center. Please also check ongoing floating volatility patterns of Legg Mason and Tax Exempt.
Diversification Opportunities for Legg Mason and Tax Exempt
-0.25 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Legg and Tax is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Legg Mason Partners and Tax Exempt Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tax Exempt 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 Tax Exempt. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tax Exempt Bond has no effect on the direction of Legg Mason i.e., Legg Mason and Tax Exempt go up and down completely randomly.
Pair Corralation between Legg Mason and Tax Exempt
Assuming the 90 days trading horizon Legg Mason Partners is expected to generate 5.27 times more return on investment than Tax Exempt. However, Legg Mason is 5.27 times more volatile than Tax Exempt Bond. It trades about 0.06 of its potential returns per unit of risk. Tax Exempt Bond is currently generating about 0.07 per unit of risk. If you would invest 1,833 in Legg Mason Partners on September 3, 2024 and sell it today you would earn a total of 634.00 from holding Legg Mason Partners or generate 34.59% 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. Tax Exempt Bond
Performance |
| Timeline |
| Legg Mason Partners |
| Tax Exempt Bond |
Legg Mason and Tax Exempt Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Legg Mason and Tax Exempt
The main advantage of trading using opposite Legg Mason and Tax Exempt positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Legg Mason position performs unexpectedly, Tax Exempt 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 Tax Exempt will offset losses from the drop in Tax Exempt'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 |
| Tax Exempt vs. Legg Mason Partners | Tax Exempt vs. Dodge Cox Emerging | Tax Exempt vs. Artisan Emerging Markets | Tax Exempt vs. T Rowe Price |
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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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