Correlation Between Legg Mason and Value Fund

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

Diversification Opportunities for Legg Mason and Value Fund

0.85

Correlation Coefficient

Legg Mason  Value Fund

Very poor diversification

The 3 months correlation between Legg and Value is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Legg Mason Partners and Value Fund Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Value Fund Value 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 Value Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Value Fund Value has no effect on the direction of Legg Mason i.e., Legg Mason and Value Fund go up and down completely randomly.

Pair Corralation between Legg Mason and Value Fund

Assuming the 90 days trading horizon Legg Mason is expected to generate 1.16 times less return on investment than Value Fund. But when comparing it to its historical volatility, Legg Mason Partners is 4.74 times less risky than Value Fund. It trades about 0.42 of its potential returns per unit of risk. Value Fund Value is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,916  in Value Fund Value on May 17, 2025 and sell it today you would earn a total of  87.00  from holding Value Fund Value or generate 4.54% return on investment over 90 days.

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

Legg Mason Partners  vs.  Value Fund Value

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 33 (%) 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.

Value Fund Value

Risk-Adjusted Performance

Fair

Compared to the overall equity markets, risk-adjusted returns on investments in Value Fund Value are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Value Fund 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 Value Fund

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

The idea behind Legg Mason Partners and Value Fund Value 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.