Correlation Between Legg Mason and State Street

Can any of the company-specific risk be diversified away by investing in both Legg Mason and State Street 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 State Street into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Legg Mason Bw and State Street Smallmid, you can compare the effects of market volatilities on Legg Mason and State Street 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 State Street. Check out your portfolio center. Please also check ongoing floating volatility patterns of Legg Mason and State Street.

Diversification Opportunities for Legg Mason and State Street

0.53

Correlation Coefficient

Legg Mason  State Street

Very weak diversification

The 3 months correlation between Legg and State is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Legg Mason Bw and State Street Smallmid in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on State Street Smallmid 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 Bw are associated (or correlated) with State Street. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of State Street Smallmid has no effect on the direction of Legg Mason i.e., Legg Mason and State Street go up and down completely randomly.

Pair Corralation between Legg Mason and State Street

Assuming the 90 days horizon Legg Mason Bw is expected to under-perform the State Street. But the mutual fund apears to be less risky and, when comparing its historical volatility, Legg Mason Bw is 2.05 times less risky than State Street. The mutual fund trades about -0.02 of its potential returns per unit of risk. The State Street Smallmid is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  31,136  in State Street Smallmid on June 29, 2025 and sell it today you would earn a total of  2,474  from holding State Street Smallmid or generate 7.95% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Legg Mason Bw  vs.  State Street Smallmid

Legg Mason Bw

Risk-Adjusted Performance

Weakest

Over the last 90 days Legg Mason Bw has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Legg Mason is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

State Street Smallmid

Risk-Adjusted Performance

Fair

Compared to the overall equity markets, risk-adjusted returns on investments in State Street Smallmid are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak essential indicators, State Street may actually be approaching a critical reversion point that can send shares even higher in October 2025.

Pair Trading with Legg Mason and State Street

The main advantage of trading using opposite Legg Mason and State Street positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Legg Mason position performs unexpectedly, State Street 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 State Street will offset losses from the drop in State Street's long position.

The idea behind Legg Mason Bw and State Street Smallmid pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.