Correlation Between Legg Mason and Chartwell Small

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

Diversification Opportunities for Legg Mason and Chartwell Small

-0.64

Correlation Coefficient

Legg Mason  Chartwell Small

Excellent diversification

The 3 months correlation between Legg and Chartwell is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Legg Mason Bw and Chartwell Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chartwell Small Cap 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 Chartwell Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chartwell Small Cap has no effect on the direction of Legg Mason i.e., Legg Mason and Chartwell Small go up and down completely randomly.

Pair Corralation between Legg Mason and Chartwell Small

Assuming the 90 days horizon Legg Mason Bw is expected to under-perform the Chartwell Small. But the mutual fund apears to be less risky and, when comparing its historical volatility, Legg Mason Bw is 4.93 times less risky than Chartwell Small. The mutual fund trades about -0.1 of its potential returns per unit of risk. The Chartwell Small Cap is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  2,041  in Chartwell Small Cap on September 3, 2024 and sell it today you would earn a total of  260.00  from holding Chartwell Small Cap or generate 12.74% return on investment over 90 days.

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

Legg Mason Bw  vs.  Chartwell Small Cap

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

Chartwell Small Cap

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Chartwell Small Cap are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Chartwell Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Legg Mason and Chartwell Small

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

The idea behind Legg Mason Bw and Chartwell Small Cap 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.