Correlation Between Legg Mason and Prudential Short-term

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

Diversification Opportunities for Legg Mason and Prudential Short-term

0.27

Correlation Coefficient

Legg Mason  Prudential Short-term

Modest diversification

The 3 months correlation between Legg and Prudential is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Legg Mason Partners and Prudential Short Term Porate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Short Term 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 Prudential Short-term. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Short Term has no effect on the direction of Legg Mason i.e., Legg Mason and Prudential Short-term go up and down completely randomly.

Pair Corralation between Legg Mason and Prudential Short-term

Assuming the 90 days horizon Legg Mason Partners is expected to generate 153.19 times more return on investment than Prudential Short-term. However, Legg Mason is 153.19 times more volatile than Prudential Short Term Porate. It trades about 0.06 of its potential returns per unit of risk. Prudential Short Term Porate is currently generating about 0.11 per unit of risk. If you would invest  343.00  in Legg Mason Partners on September 4, 2024 and sell it today you would lose (243.00) from holding Legg Mason Partners or give up 70.85% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.8%
Values	Daily Returns

Legg Mason Partners  vs.  Prudential Short Term Porate

Legg Mason Partners

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Legg Mason Partners 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.

Prudential Short Term

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Prudential Short Term Porate has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Prudential Short-term 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 Prudential Short-term

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

The idea behind Legg Mason Partners and Prudential Short Term Porate 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.