Correlation Between Davis Opportunity and Legg Mason
Can any of the company-specific risk be diversified away by investing in both Davis Opportunity 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 Davis Opportunity and Legg Mason into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Davis Opportunity and Legg Mason Partners, you can compare the effects of market volatilities on Davis Opportunity 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 Davis Opportunity with a short position of Legg Mason. Check out your portfolio center. Please also check ongoing floating volatility patterns of Davis Opportunity and Legg Mason.
Diversification Opportunities for Davis Opportunity and Legg Mason
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Davis and Legg is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Davis Opportunity and Legg Mason Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Legg Mason Partners and Davis Opportunity 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 Davis Opportunity 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 Partners has no effect on the direction of Davis Opportunity i.e., Davis Opportunity and Legg Mason go up and down completely randomly.
Pair Corralation between Davis Opportunity and Legg Mason
Assuming the 90 days horizon Davis Opportunity is expected to generate 1.5 times more return on investment than Legg Mason. However, Davis Opportunity is 1.5 times more volatile than Legg Mason Partners. It trades about 0.08 of its potential returns per unit of risk. Legg Mason Partners is currently generating about 0.05 per unit of risk. If you would invest 3,344 in Davis Opportunity on September 2, 2024 and sell it today you would earn a total of 1,341 from holding Davis Opportunity or generate 40.1% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Davis Opportunity vs. Legg Mason Partners
Performance |
| Timeline |
| Davis Opportunity |
| Legg Mason Partners |
Davis Opportunity and Legg Mason Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Davis Opportunity and Legg Mason
The main advantage of trading using opposite Davis Opportunity and Legg Mason positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Davis Opportunity 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.| Davis Opportunity vs. Virtus Convertible | Davis Opportunity vs. Putnam Convertible Incm Gwth | Davis Opportunity vs. Lord Abbett Convertible | Davis Opportunity vs. Columbia Vertible Securities |
| Legg Mason vs. Vanguard Total Stock | Legg Mason vs. Vanguard 500 Index | Legg Mason vs. Vanguard Total Stock | Legg Mason vs. Vanguard Total Stock |
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 Global Correlations module to find global opportunities by holding instruments from different markets.
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