Correlation Between Legg Mason and First Trust

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

Diversification Opportunities for Legg Mason and First Trust

0.7

Correlation Coefficient

Legg Mason  First Trust

Poor diversification

The 3 months correlation between Legg and First is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Legg Mason Partners and First Trust Multi Strategy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Multi 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 First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Multi has no effect on the direction of Legg Mason i.e., Legg Mason and First Trust go up and down completely randomly.

Pair Corralation between Legg Mason and First Trust

Assuming the 90 days trading horizon Legg Mason Partners is expected to generate 1.24 times more return on investment than First Trust. However, Legg Mason is 1.24 times more volatile than First Trust Multi Strategy. It trades about 0.45 of its potential returns per unit of risk. First Trust Multi Strategy is currently generating about 0.33 per unit of risk. If you would invest  618.00  in Legg Mason Partners on May 22, 2025 and sell it today you would earn a total of  26.00  from holding Legg Mason Partners or generate 4.21% return on investment over 90 days.

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

Legg Mason Partners  vs.  First Trust Multi Strategy

Legg Mason Partners

Risk-Adjusted Performance

High

Compared to the overall equity markets, risk-adjusted returns on investments in Legg Mason Partners are ranked lower than 35 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong primary indicators, Legg Mason is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

First Trust Multi

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Multi Strategy are ranked lower than 26 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, First Trust 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 First Trust

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

The idea behind Legg Mason Partners and First Trust Multi Strategy 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.