Correlation Between Capital World and Legg Mason
Can any of the company-specific risk be diversified away by investing in both Capital World and Legg Mason 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 Capital World and Legg Mason into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Capital World Bond and Legg Mason Bw, you can compare the effects of market volatilities on Capital World and Legg Mason 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 Capital World with a short position of Legg Mason. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital World and Legg Mason.
Diversification Opportunities for Capital World and Legg Mason
0.99 | Correlation Coefficient |
No risk reduction
The 3 months correlation between Capital and Legg is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Capital World Bond and Legg Mason Bw in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Legg Mason Bw and Capital World 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 Capital World Bond are associated (or correlated) with Legg Mason. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Legg Mason Bw has no effect on the direction of Capital World i.e., Capital World and Legg Mason go up and down completely randomly.
Pair Corralation between Capital World and Legg Mason
Assuming the 90 days horizon Capital World Bond is expected to generate 0.66 times more return on investment than Legg Mason. However, Capital World Bond is 1.52 times less risky than Legg Mason. It trades about 0.01 of its potential returns per unit of risk. Legg Mason Bw is currently generating about 0.0 per unit of risk. If you would invest 1,565 in Capital World Bond on September 3, 2024 and sell it today you would earn a total of 31.00 from holding Capital World Bond or generate 1.98% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Capital World Bond vs. Legg Mason Bw
Performance |
| Timeline |
| Capital World Bond |
| Legg Mason Bw |
Capital World and Legg Mason Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Capital World and Legg Mason
The main advantage of trading using opposite Capital World and Legg Mason positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Capital World position performs unexpectedly, Legg Mason 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 Legg Mason will offset losses from the drop in Legg Mason's long position.| Capital World vs. Blrc Sgy Mnp | Capital World vs. Touchstone Premium Yield | Capital World vs. Gmo High Yield | Capital World vs. Maryland Tax Free Bond |
| Legg Mason vs. Baron Health Care | Legg Mason vs. Baillie Gifford Health | Legg Mason vs. Highland Longshort Healthcare | Legg Mason vs. Prudential Health Sciences |
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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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