Correlation Between Legg Mason and American Funds
Can any of the company-specific risk be diversified away by investing in both Legg Mason and American Funds 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 American Funds 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 American Funds Fundamental, you can compare the effects of market volatilities on Legg Mason and American Funds 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 American Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Legg Mason and American Funds.
Diversification Opportunities for Legg Mason and American Funds
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Legg and American is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Legg Mason Partners and American Funds Fundamental in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds Funda 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 American Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Funds Funda has no effect on the direction of Legg Mason i.e., Legg Mason and American Funds go up and down completely randomly.
Pair Corralation between Legg Mason and American Funds
Assuming the 90 days trading horizon Legg Mason is expected to generate 3.14 times less return on investment than American Funds. But when comparing it to its historical volatility, Legg Mason Partners is 3.91 times less risky than American Funds. It trades about 0.31 of its potential returns per unit of risk. American Funds Fundamental is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest 8,509 in American Funds Fundamental on September 2, 2024 and sell it today you would earn a total of 322.00 from holding American Funds Fundamental or generate 3.78% 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. American Funds Fundamental
Performance |
| Timeline |
| Legg Mason Partners |
| American Funds Funda |
Legg Mason and American Funds Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Legg Mason and American Funds
The main advantage of trading using opposite Legg Mason and American Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Legg Mason position performs unexpectedly, American Funds 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 American Funds will offset losses from the drop in American Funds' 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 |
| American Funds vs. Income Fund Of | American Funds vs. New World Fund | American Funds vs. American Mutual Fund | American Funds vs. American Mutual 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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