Correlation Between Midcap Growth and Legg Mason

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

By analyzing existing cross correlation between Midcap Growth Fund and Legg Mason Partners, you can compare the effects of market volatilities on Midcap Growth and Legg Mason 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 Midcap Growth with a short position of Legg Mason. Check out your portfolio center. Please also check ongoing floating volatility patterns of Midcap Growth and Legg Mason.

Diversification Opportunities for Midcap Growth and Legg Mason

0.82

Correlation Coefficient

Midcap Growth  Legg Mason

Very poor diversification

The 3 months correlation between Midcap and Legg is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Midcap Growth Fund and Legg Mason Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Legg Mason Partners and Midcap Growth 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 Midcap Growth Fund are associated (or correlated) with Legg Mason. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Legg Mason Partners has no effect on the direction of Midcap Growth i.e., Midcap Growth and Legg Mason go up and down completely randomly.

Pair Corralation between Midcap Growth and Legg Mason

Assuming the 90 days horizon Midcap Growth Fund is expected to generate 2.46 times more return on investment than Legg Mason. However, Midcap Growth is 2.46 times more volatile than Legg Mason Partners. It trades about 0.15 of its potential returns per unit of risk. Legg Mason Partners is currently generating about 0.12 per unit of risk. If you would invest  999.00  in Midcap Growth Fund on September 12, 2024 and sell it today you would earn a total of  228.00  from holding Midcap Growth Fund or generate 22.82% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.2%
Values	Daily Returns

Midcap Growth Fund  vs.  Legg Mason Partners

Midcap Growth

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Midcap Growth Fund are ranked lower than 24 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Midcap Growth showed solid returns over the last few months and may actually be approaching a breakup point.

Legg Mason Partners

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Legg Mason Partners are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong primary indicators, Legg Mason is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Midcap Growth and Legg Mason

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

The idea behind Midcap Growth Fund and Legg Mason Partners 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.