Correlation Between Legg Mason and Deutsche Short

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

By analyzing existing cross correlation between Legg Mason Global and Deutsche Short Term Municipal, you can compare the effects of market volatilities on Legg Mason and Deutsche Short 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 Deutsche Short. Check out your portfolio center. Please also check ongoing floating volatility patterns of Legg Mason and Deutsche Short.

Diversification Opportunities for Legg Mason and Deutsche Short

0.55

Correlation Coefficient

Legg Mason  Deutsche Short

Very weak diversification

The 3 months correlation between Legg and Deutsche is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Legg Mason Global and Deutsche Short Term Municipal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deutsche 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 Global are associated (or correlated) with Deutsche Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Deutsche Short Term has no effect on the direction of Legg Mason i.e., Legg Mason and Deutsche Short go up and down completely randomly.

Pair Corralation between Legg Mason and Deutsche Short

Assuming the 90 days horizon Legg Mason Global is expected to under-perform the Deutsche Short. In addition to that, Legg Mason is 4.19 times more volatile than Deutsche Short Term Municipal. It trades about -0.21 of its total potential returns per unit of risk. Deutsche Short Term Municipal is currently generating about -0.03 per unit of volatility. If you would invest  984.00  in Deutsche Short Term Municipal on September 27, 2024 and sell it today you would lose (2.00) from holding Deutsche Short Term Municipal or give up 0.2% of portfolio value over 90 days.

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

Legg Mason Global  vs.  Deutsche Short Term Municipal

Legg Mason Global

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Legg Mason Global 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.

Deutsche Short Term

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Legg Mason Global and Deutsche Short Term Municipal 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.