Correlation Between Legg Mason and Aberdeen China

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

By analyzing existing cross correlation between Legg Mason Partners and Aberdeen China Oppty, you can compare the effects of market volatilities on Legg Mason and Aberdeen China 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 Aberdeen China. Check out your portfolio center. Please also check ongoing floating volatility patterns of Legg Mason and Aberdeen China.

Diversification Opportunities for Legg Mason and Aberdeen China

0.57

Correlation Coefficient

Legg Mason  Aberdeen China

Very weak diversification

The 3 months correlation between Legg and Aberdeen is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Legg Mason Partners and Aberdeen China Oppty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aberdeen China Oppty 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 Partners are associated (or correlated) with Aberdeen China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aberdeen China Oppty has no effect on the direction of Legg Mason i.e., Legg Mason and Aberdeen China go up and down completely randomly.

Pair Corralation between Legg Mason and Aberdeen China

Assuming the 90 days trading horizon Legg Mason is expected to generate 2.19 times less return on investment than Aberdeen China. But when comparing it to its historical volatility, Legg Mason Partners is 3.83 times less risky than Aberdeen China. It trades about 0.2 of its potential returns per unit of risk. Aberdeen China Oppty is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,753  in Aberdeen China Oppty on September 5, 2024 and sell it today you would earn a total of  280.00  from holding Aberdeen China Oppty or generate 15.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Legg Mason Partners  vs.  Aberdeen China Oppty

Legg Mason Partners

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Legg Mason Partners are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak primary indicators, Legg Mason may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Aberdeen China Oppty

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Aberdeen China Oppty are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Aberdeen China showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Legg Mason and Aberdeen China

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

The idea behind Legg Mason Partners and Aberdeen China Oppty 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .