Correlation Between Legg Mason and Highland Merger
Can any of the company-specific risk be diversified away by investing in both Legg Mason and Highland Merger 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 Highland Merger 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 Highland Merger Arbitrage, you can compare the effects of market volatilities on Legg Mason and Highland Merger 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 Highland Merger. Check out your portfolio center. Please also check ongoing floating volatility patterns of Legg Mason and Highland Merger.
Diversification Opportunities for Legg Mason and Highland Merger
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Legg and Highland is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Legg Mason Partners and Highland Merger Arbitrage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Highland Merger Arbitrage 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 Highland Merger. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Highland Merger Arbitrage has no effect on the direction of Legg Mason i.e., Legg Mason and Highland Merger go up and down completely randomly.
Pair Corralation between Legg Mason and Highland Merger
Assuming the 90 days trading horizon Legg Mason Partners is expected to generate 2.21 times more return on investment than Highland Merger. However, Legg Mason is 2.21 times more volatile than Highland Merger Arbitrage. It trades about 0.32 of its potential returns per unit of risk. Highland Merger Arbitrage is currently generating about 0.18 per unit of risk. If you would invest 665.00 in Legg Mason Partners on September 3, 2024 and sell it today you would earn a total of 8.00 from holding Legg Mason Partners or generate 1.2% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Legg Mason Partners vs. Highland Merger Arbitrage
Performance |
| Timeline |
| Legg Mason Partners |
| Highland Merger Arbitrage |
Legg Mason and Highland Merger Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Legg Mason and Highland Merger
The main advantage of trading using opposite Legg Mason and Highland Merger positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Legg Mason position performs unexpectedly, Highland Merger 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 Highland Merger will offset losses from the drop in Highland Merger's long position.The idea behind Legg Mason Partners and Highland Merger Arbitrage 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.| Highland Merger vs. Blckrk Lc Cr | Highland Merger vs. Blckrk Lc Cr | Highland Merger vs. Blkrk Lc Cr | Highland Merger vs. The Merger 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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