Correlation Between Legg Mason and Rbc Smid

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

Diversification Opportunities for Legg Mason and Rbc Smid

0.85

Correlation Coefficient

Legg Mason  Rbc Smid

Very poor diversification

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

Pair Corralation between Legg Mason and Rbc Smid

Assuming the 90 days horizon Legg Mason Bw is expected to generate 0.68 times more return on investment than Rbc Smid. However, Legg Mason Bw is 1.47 times less risky than Rbc Smid. It trades about 0.08 of its potential returns per unit of risk. Rbc Smid Cap is currently generating about 0.03 per unit of risk. If you would invest  1,752  in Legg Mason Bw on September 5, 2024 and sell it today you would earn a total of  596.00  from holding Legg Mason Bw or generate 34.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.8%
Values	Daily Returns

Legg Mason Bw  vs.  Rbc Smid Cap

Legg Mason Bw

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Legg Mason Bw are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Legg Mason may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Rbc Smid Cap

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rbc Smid Cap are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Rbc Smid may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Legg Mason and Rbc Smid

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

The idea behind Legg Mason Bw and Rbc Smid 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.