Correlation Between Legg Mason and Western Asset

Can any of the company-specific risk be diversified away by investing in both Legg Mason and Western Asset 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 Western Asset 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 Western Asset Short, you can compare the effects of market volatilities on Legg Mason and Western Asset 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 Western Asset. Check out your portfolio center. Please also check ongoing floating volatility patterns of Legg Mason and Western Asset.

Diversification Opportunities for Legg Mason and Western Asset

-0.34

Correlation Coefficient

Legg Mason  Western Asset

Very good diversification

The 3 months correlation between Legg and Western is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Legg Mason Bw and Western Asset Short in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Asset Short 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 Western Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Asset Short has no effect on the direction of Legg Mason i.e., Legg Mason and Western Asset go up and down completely randomly.

Pair Corralation between Legg Mason and Western Asset

Assuming the 90 days horizon Legg Mason is expected to generate 2.63 times less return on investment than Western Asset. But when comparing it to its historical volatility, Legg Mason Bw is 1.36 times less risky than Western Asset. It trades about 0.1 of its potential returns per unit of risk. Western Asset Short is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  484.00  in Western Asset Short on August 21, 2024 and sell it today you would earn a total of  3.00  from holding Western Asset Short or generate 0.62% return on investment over 90 days.

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

Legg Mason Bw  vs.  Western Asset Short

Legg Mason Bw

Risk-Adjusted Performance

0 of 100

Very Weak

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 basic indicators, Legg Mason is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Western Asset Short

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Western Asset Short are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Western Asset is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Legg Mason and Western Asset

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

The idea behind Legg Mason Bw and Western Asset Short 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.