Correlation Between American Funds and Legg Mason
Can any of the company-specific risk be diversified away by investing in both American Funds 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 American Funds and Legg Mason into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Funds 2065 and Legg Mason Bw, you can compare the effects of market volatilities on American Funds 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 American Funds with a short position of Legg Mason. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and Legg Mason.
Diversification Opportunities for American Funds and Legg Mason
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between American and Legg is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding American Funds 2065 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 American Funds 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 American Funds 2065 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 American Funds i.e., American Funds and Legg Mason go up and down completely randomly.
Pair Corralation between American Funds and Legg Mason
Assuming the 90 days horizon American Funds 2065 is expected to generate 0.91 times more return on investment than Legg Mason. However, American Funds 2065 is 1.1 times less risky than Legg Mason. It trades about 0.1 of its potential returns per unit of risk. Legg Mason Bw is currently generating about 0.08 per unit of risk. If you would invest 1,319 in American Funds 2065 on September 4, 2024 and sell it today you would earn a total of 513.00 from holding American Funds 2065 or generate 38.89% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Funds 2065 vs. Legg Mason Bw
Performance |
| Timeline |
| American Funds 2065 |
| Legg Mason Bw |
American Funds and Legg Mason Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Funds and Legg Mason
The main advantage of trading using opposite American Funds and Legg Mason positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Funds 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.| American Funds vs. Templeton Developing Markets | American Funds vs. Locorr Market Trend | American Funds vs. Massmutual Select Diversified | American Funds vs. Mondrian Emerging Markets |
| Legg Mason vs. Clearbridge Aggressive Growth | Legg Mason vs. Clearbridge Small Cap | Legg Mason vs. Qs International Equity | Legg Mason vs. Clearbridge Appreciation 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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