Correlation Between Vanguard 500 and Legg Mason
Can any of the company-specific risk be diversified away by investing in both Vanguard 500 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 Vanguard 500 and Legg Mason into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard 500 Index and Legg Mason Partners, you can compare the effects of market volatilities on Vanguard 500 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 Vanguard 500 with a short position of Legg Mason. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard 500 and Legg Mason.
Diversification Opportunities for Vanguard 500 and Legg Mason
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between VANGUARD and Legg is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard 500 Index 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 Vanguard 500 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 Vanguard 500 Index 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 Vanguard 500 i.e., Vanguard 500 and Legg Mason go up and down completely randomly.
Pair Corralation between Vanguard 500 and Legg Mason
Assuming the 90 days horizon Vanguard 500 Index is expected to generate 1.6 times more return on investment than Legg Mason. However, Vanguard 500 is 1.6 times more volatile than Legg Mason Partners. It trades about 0.12 of its potential returns per unit of risk. Legg Mason Partners is currently generating about 0.09 per unit of risk. If you would invest 53,531 in Vanguard 500 Index on August 24, 2024 and sell it today you would earn a total of 1,159 from holding Vanguard 500 Index or generate 2.17% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard 500 Index vs. Legg Mason Partners
Performance |
| Timeline |
| Vanguard 500 Index |
| Legg Mason Partners |
Vanguard 500 and Legg Mason Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard 500 and Legg Mason
The main advantage of trading using opposite Vanguard 500 and Legg Mason positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard 500 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.| Vanguard 500 vs. Vanguard Total Stock | Vanguard 500 vs. Vanguard Mid Cap Index | Vanguard 500 vs. Vanguard Small Cap Index | Vanguard 500 vs. Vanguard Total Bond |
| Legg Mason vs. Delaware Limited Term Diversified | Legg Mason vs. Lord Abbett Diversified | Legg Mason vs. Eic Value Fund | Legg Mason vs. Western Asset Pennsylvania |
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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