Correlation Between Legg Mason and First American
Can any of the company-specific risk be diversified away by investing in both Legg Mason and First American 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 First American 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 First American Funds, you can compare the effects of market volatilities on Legg Mason and First American 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 First American. Check out your portfolio center. Please also check ongoing floating volatility patterns of Legg Mason and First American.
Diversification Opportunities for Legg Mason and First American
0.0 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Legg and First is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Legg Mason Partners and First American Funds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First American Funds 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 First American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First American Funds has no effect on the direction of Legg Mason i.e., Legg Mason and First American go up and down completely randomly.
Pair Corralation between Legg Mason and First American
Assuming the 90 days trading horizon Legg Mason is expected to generate 16.96 times less return on investment than First American. But when comparing it to its historical volatility, Legg Mason Partners is 44.59 times less risky than First American. It trades about 0.07 of its potential returns per unit of risk. First American Funds is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 352.00 in First American Funds on December 16, 2024 and sell it today you would lose (252.00) from holding First American Funds or give up 71.59% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Flat |
| Strength | Insignificant |
| Accuracy | 99.6% |
| Values | Daily Returns |
Legg Mason Partners vs. First American Funds
Performance |
| Timeline |
| Legg Mason Partners |
| First American Funds |
Legg Mason and First American Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Legg Mason and First American
The main advantage of trading using opposite Legg Mason and First American positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Legg Mason position performs unexpectedly, First American 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 First American will offset losses from the drop in First American's long position.| Legg Mason vs. Barings Emerging Markets | ||
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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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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