Correlation Between Legg Mason and Prudential Government
Can any of the company-specific risk be diversified away by investing in both Legg Mason and Prudential Government 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 Prudential Government 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 Prudential Government Money, you can compare the effects of market volatilities on Legg Mason and Prudential Government 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 Prudential Government. Check out your portfolio center. Please also check ongoing floating volatility patterns of Legg Mason and Prudential Government.
Diversification Opportunities for Legg Mason and Prudential Government
1.0 | Correlation Coefficient |
No risk reduction
The 3 months correlation between Legg and Prudential is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Legg Mason Partners and Prudential Government Money in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Government 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 Prudential Government. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Government has no effect on the direction of Legg Mason i.e., Legg Mason and Prudential Government go up and down completely randomly.
Pair Corralation between Legg Mason and Prudential Government
Assuming the 90 days horizon Legg Mason Partners is expected to generate 1.5 times more return on investment than Prudential Government. However, Legg Mason is 1.5 times more volatile than Prudential Government Money. It trades about 0.03 of its potential returns per unit of risk. Prudential Government Money is currently generating about 0.04 per unit of risk. If you would invest 93.00 in Legg Mason Partners on August 31, 2024 and sell it today you would earn a total of 7.00 from holding Legg Mason Partners or generate 7.53% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 98.51% |
| Values | Daily Returns |
Legg Mason Partners vs. Prudential Government Money
Performance |
| Timeline |
| Legg Mason Partners |
| Prudential Government |
Legg Mason and Prudential Government Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Legg Mason and Prudential Government
The main advantage of trading using opposite Legg Mason and Prudential Government positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Legg Mason position performs unexpectedly, Prudential Government 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 Prudential Government will offset losses from the drop in Prudential Government'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 |
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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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