Correlation Between Legg Mason and Davis Opportunity
Can any of the company-specific risk be diversified away by investing in both Legg Mason and Davis Opportunity 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 Davis Opportunity 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 Davis Opportunity, you can compare the effects of market volatilities on Legg Mason and Davis Opportunity 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 Davis Opportunity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Legg Mason and Davis Opportunity.
Diversification Opportunities for Legg Mason and Davis Opportunity
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Legg and Davis is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Legg Mason Partners and Davis Opportunity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Davis Opportunity 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 Davis Opportunity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Davis Opportunity has no effect on the direction of Legg Mason i.e., Legg Mason and Davis Opportunity go up and down completely randomly.
Pair Corralation between Legg Mason and Davis Opportunity
Assuming the 90 days trading horizon Legg Mason is expected to generate 1.87 times less return on investment than Davis Opportunity. But when comparing it to its historical volatility, Legg Mason Partners is 1.96 times less risky than Davis Opportunity. It trades about 0.1 of its potential returns per unit of risk. Davis Opportunity is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 3,517 in Davis Opportunity on August 31, 2024 and sell it today you would earn a total of 1,168 from holding Davis Opportunity or generate 33.21% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.73% |
| Values | Daily Returns |
Legg Mason Partners vs. Davis Opportunity
Performance |
| Timeline |
| Legg Mason Partners |
| Davis Opportunity |
Legg Mason and Davis Opportunity Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Legg Mason and Davis Opportunity
The main advantage of trading using opposite Legg Mason and Davis Opportunity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Legg Mason position performs unexpectedly, Davis Opportunity 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 Davis Opportunity will offset losses from the drop in Davis Opportunity'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 |
| Davis Opportunity vs. Legg Mason Partners | Davis Opportunity vs. Pioneer High Yield | Davis Opportunity vs. Prudential Short Duration | Davis Opportunity vs. Metropolitan West 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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