Correlation Between Brown Advisory and Legg Mason

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

By analyzing existing cross correlation between Brown Advisory Mortgage and Legg Mason Partners, you can compare the effects of market volatilities on Brown Advisory 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 Brown Advisory with a short position of Legg Mason. Check out your portfolio center. Please also check ongoing floating volatility patterns of Brown Advisory and Legg Mason.

Diversification Opportunities for Brown Advisory and Legg Mason

-0.72

Correlation Coefficient

Brown Advisory  Legg Mason

Pay attention - limited upside

The 3 months correlation between Brown and Legg is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding Brown Advisory Mortgage 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 Brown Advisory 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 Brown Advisory Mortgage 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 Brown Advisory i.e., Brown Advisory and Legg Mason go up and down completely randomly.

Pair Corralation between Brown Advisory and Legg Mason

Assuming the 90 days horizon Brown Advisory Mortgage is expected to under-perform the Legg Mason. But the mutual fund apears to be less risky and, when comparing its historical volatility, Brown Advisory Mortgage is 2.03 times less risky than Legg Mason. The mutual fund trades about -0.06 of its potential returns per unit of risk. The Legg Mason Partners is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  2,286  in Legg Mason Partners on September 3, 2024 and sell it today you would earn a total of  181.00  from holding Legg Mason Partners or generate 7.92% return on investment over 90 days.

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

Brown Advisory Mortgage  vs.  Legg Mason Partners

Brown Advisory Mortgage

Risk-Adjusted Performance

0 of 100

Very Weak

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

Legg Mason Partners

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Legg Mason Partners are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak primary indicators, Legg Mason may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Brown Advisory and Legg Mason

The main advantage of trading using opposite Brown Advisory and Legg Mason positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Brown Advisory 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.

The idea behind Brown Advisory Mortgage and Legg Mason Partners 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.

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