Correlation Between Legg Mason and Mainstay Income

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

Diversification Opportunities for Legg Mason and Mainstay Income

0.29

Correlation Coefficient

Legg Mason  Mainstay Income

Modest diversification

The 3 months correlation between Legg and Mainstay is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Legg Mason Bw and Mainstay Income Builder in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mainstay Income Builder 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 Mainstay Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mainstay Income Builder has no effect on the direction of Legg Mason i.e., Legg Mason and Mainstay Income go up and down completely randomly.

Pair Corralation between Legg Mason and Mainstay Income

Assuming the 90 days horizon Legg Mason Bw is expected to generate 1.75 times more return on investment than Mainstay Income. However, Legg Mason is 1.75 times more volatile than Mainstay Income Builder. It trades about 0.16 of its potential returns per unit of risk. Mainstay Income Builder is currently generating about 0.08 per unit of risk. If you would invest  2,196  in Legg Mason Bw on September 3, 2024 and sell it today you would earn a total of  178.00  from holding Legg Mason Bw or generate 8.11% return on investment over 90 days.

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

Legg Mason Bw  vs.  Mainstay Income Builder

Legg Mason Bw

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Legg Mason Bw are ranked lower than 12 (%) 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.

Mainstay Income Builder

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Mainstay Income Builder are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Mainstay Income 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 Mainstay Income

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

The idea behind Legg Mason Bw and Mainstay Income Builder 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.