Correlation Between Legg Mason and Metropolitan West
Can any of the company-specific risk be diversified away by investing in both Legg Mason and Metropolitan West 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 Metropolitan West 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 Metropolitan West High, you can compare the effects of market volatilities on Legg Mason and Metropolitan West 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 Metropolitan West. Check out your portfolio center. Please also check ongoing floating volatility patterns of Legg Mason and Metropolitan West.
Diversification Opportunities for Legg Mason and Metropolitan West
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Legg and Metropolitan is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Legg Mason Partners and Metropolitan West High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metropolitan West High 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 Metropolitan West. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Metropolitan West High has no effect on the direction of Legg Mason i.e., Legg Mason and Metropolitan West go up and down completely randomly.
Pair Corralation between Legg Mason and Metropolitan West
Assuming the 90 days trading horizon Legg Mason Partners is expected to generate 1.35 times more return on investment than Metropolitan West. However, Legg Mason is 1.35 times more volatile than Metropolitan West High. It trades about 0.22 of its potential returns per unit of risk. Metropolitan West High is currently generating about 0.21 per unit of risk. If you would invest 666.00 in Legg Mason Partners on August 31, 2024 and sell it today you would earn a total of 6.00 from holding Legg Mason Partners or generate 0.9% 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. Metropolitan West High
Performance |
| Timeline |
| Legg Mason Partners |
| Metropolitan West High |
Legg Mason and Metropolitan West Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Legg Mason and Metropolitan West
The main advantage of trading using opposite Legg Mason and Metropolitan West positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Legg Mason position performs unexpectedly, Metropolitan West 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 Metropolitan West will offset losses from the drop in Metropolitan West's 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 |
| Metropolitan West vs. Federated Total Return | Metropolitan West vs. Global Bond Fund | Metropolitan West vs. Government Bond Fund | Metropolitan West vs. Aberdeen Global High |
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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..
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