Correlation Between Legg Mason and IShares Core

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

By analyzing existing cross correlation between Legg Mason Low and iShares Core SP, you can compare the effects of market volatilities on Legg Mason and IShares Core 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 IShares Core. Check out your portfolio center. Please also check ongoing floating volatility patterns of Legg Mason and IShares Core.

Diversification Opportunities for Legg Mason and IShares Core

0.51

Correlation Coefficient

Legg Mason  IShares Core

Very weak diversification

The 3 months correlation between Legg and IShares is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Legg Mason Low and iShares Core SP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Core SP 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 Low are associated (or correlated) with IShares Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Core SP has no effect on the direction of Legg Mason i.e., Legg Mason and IShares Core go up and down completely randomly.

Pair Corralation between Legg Mason and IShares Core

Given the investment horizon of 90 days Legg Mason Low is expected to generate 0.48 times more return on investment than IShares Core. However, Legg Mason Low is 2.08 times less risky than IShares Core. It trades about 0.38 of its potential returns per unit of risk. iShares Core SP is currently generating about 0.09 per unit of risk. If you would invest  3,943  in Legg Mason Low on August 31, 2024 and sell it today you would earn a total of  181.00  from holding Legg Mason Low or generate 4.59% return on investment over 90 days.

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

Legg Mason Low  vs.  iShares Core SP

Legg Mason Low

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Legg Mason Low are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical indicators, Legg Mason is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

iShares Core SP

Risk-Adjusted Performance

13 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Core SP are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal basic indicators, IShares Core may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Legg Mason and IShares Core

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

The idea behind Legg Mason Low and iShares Core SP 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.