Correlation Between Legg Mason and Goldman Sachs
Can any of the company-specific risk be diversified away by investing in both Legg Mason and Goldman Sachs 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 Goldman Sachs 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 Goldman Sachs Equity, you can compare the effects of market volatilities on Legg Mason and Goldman Sachs 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 Goldman Sachs. Check out your portfolio center. Please also check ongoing floating volatility patterns of Legg Mason and Goldman Sachs.
Diversification Opportunities for Legg Mason and Goldman Sachs
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Legg and Goldman is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Legg Mason Partners and Goldman Sachs Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Goldman Sachs Equity 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 Goldman Sachs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Goldman Sachs Equity has no effect on the direction of Legg Mason i.e., Legg Mason and Goldman Sachs go up and down completely randomly.
Pair Corralation between Legg Mason and Goldman Sachs
Assuming the 90 days trading horizon Legg Mason Partners is expected to generate 0.24 times more return on investment than Goldman Sachs. However, Legg Mason Partners is 4.26 times less risky than Goldman Sachs. It trades about 0.24 of its potential returns per unit of risk. Goldman Sachs Equity is currently generating about -0.08 per unit of risk. If you would invest 639.00 in Legg Mason Partners on December 1, 2024 and sell it today you would earn a total of 5.00 from holding Legg Mason Partners or generate 0.78% 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. Goldman Sachs Equity
Performance |
| Timeline |
| Legg Mason Partners |
| Goldman Sachs Equity |
Legg Mason and Goldman Sachs Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Legg Mason and Goldman Sachs
The main advantage of trading using opposite Legg Mason and Goldman Sachs positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Legg Mason position performs unexpectedly, Goldman Sachs 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 Goldman Sachs will offset losses from the drop in Goldman Sachs' 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 |
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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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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