Correlation Between Legg Mason and Ab Discovery
Can any of the company-specific risk be diversified away by investing in both Legg Mason and Ab Discovery 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 Ab Discovery 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 Ab Discovery Growth, you can compare the effects of market volatilities on Legg Mason and Ab Discovery 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 Ab Discovery. Check out your portfolio center. Please also check ongoing floating volatility patterns of Legg Mason and Ab Discovery.
Diversification Opportunities for Legg Mason and Ab Discovery
0.24 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Legg and CHCZX is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Legg Mason Partners and Ab Discovery Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ab Discovery Growth 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 Ab Discovery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ab Discovery Growth has no effect on the direction of Legg Mason i.e., Legg Mason and Ab Discovery go up and down completely randomly.
Pair Corralation between Legg Mason and Ab Discovery
Assuming the 90 days horizon Legg Mason is expected to generate 5.2 times less return on investment than Ab Discovery. But when comparing it to its historical volatility, Legg Mason Partners is 2.45 times less risky than Ab Discovery. It trades about 0.04 of its potential returns per unit of risk. Ab Discovery Growth is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 1,036 in Ab Discovery Growth on August 31, 2024 and sell it today you would earn a total of 388.00 from holding Ab Discovery Growth or generate 37.45% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 99.73% |
| Values | Daily Returns |
Legg Mason Partners vs. Ab Discovery Growth
Performance |
| Timeline |
| Legg Mason Partners |
| Ab Discovery Growth |
Legg Mason and Ab Discovery Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Legg Mason and Ab Discovery
The main advantage of trading using opposite Legg Mason and Ab Discovery positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Legg Mason position performs unexpectedly, Ab Discovery 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 Ab Discovery will offset losses from the drop in Ab Discovery'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 |
| Ab Discovery vs. Legg Mason Partners | Ab Discovery vs. Ashmore Emerging Markets | Ab Discovery vs. Prudential Government Money | Ab Discovery vs. T Rowe Price |
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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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