Correlation Between Legg Mason and Dreyfus Diversified
Can any of the company-specific risk be diversified away by investing in both Legg Mason and Dreyfus Diversified 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 Dreyfus Diversified 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 Dreyfus Diversified International, you can compare the effects of market volatilities on Legg Mason and Dreyfus Diversified 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 Dreyfus Diversified. Check out your portfolio center. Please also check ongoing floating volatility patterns of Legg Mason and Dreyfus Diversified.
Diversification Opportunities for Legg Mason and Dreyfus Diversified
0.67 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Legg and Dreyfus is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Legg Mason Partners and Dreyfus Diversified Internatio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dreyfus Diversified 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 Dreyfus Diversified. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dreyfus Diversified has no effect on the direction of Legg Mason i.e., Legg Mason and Dreyfus Diversified go up and down completely randomly.
Pair Corralation between Legg Mason and Dreyfus Diversified
Assuming the 90 days trading horizon Legg Mason is expected to generate 1.69 times less return on investment than Dreyfus Diversified. But when comparing it to its historical volatility, Legg Mason Partners is 1.2 times less risky than Dreyfus Diversified. It trades about 0.05 of its potential returns per unit of risk. Dreyfus Diversified International is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 827.00 in Dreyfus Diversified International on September 3, 2024 and sell it today you would earn a total of 184.00 from holding Dreyfus Diversified International or generate 22.25% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 83.03% |
| Values | Daily Returns |
Legg Mason Partners vs. Dreyfus Diversified Internatio
Performance |
| Timeline |
| Legg Mason Partners |
| Dreyfus Diversified |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Legg Mason and Dreyfus Diversified Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Legg Mason and Dreyfus Diversified
The main advantage of trading using opposite Legg Mason and Dreyfus Diversified positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Legg Mason position performs unexpectedly, Dreyfus Diversified 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 Dreyfus Diversified will offset losses from the drop in Dreyfus Diversified's long position.The idea behind Legg Mason Partners and Dreyfus Diversified International pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| Dreyfus Diversified vs. Gmo Resources | Dreyfus Diversified vs. Franklin Natural Resources | Dreyfus Diversified vs. Tortoise Energy Independence | Dreyfus Diversified vs. World Energy 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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