Correlation Between Legg Mason and Blue Chip

Can any of the company-specific risk be diversified away by investing in both Legg Mason and Blue Chip 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 Blue Chip 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 Blue Chip 35, you can compare the effects of market volatilities on Legg Mason and Blue Chip 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 Blue Chip. Check out your portfolio center. Please also check ongoing floating volatility patterns of Legg Mason and Blue Chip.

Diversification Opportunities for Legg Mason and Blue Chip

0.0

Correlation Coefficient

Legg Mason  Blue Chip

Pay attention - limited upside

The 3 months correlation between Legg and Blue is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Legg Mason Partners and Blue Chip 35 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Blue Chip 35 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 Blue Chip. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Blue Chip 35 has no effect on the direction of Legg Mason i.e., Legg Mason and Blue Chip go up and down completely randomly.

Pair Corralation between Legg Mason and Blue Chip

If you would invest  2,487  in Legg Mason Partners on August 31, 2024 and sell it today you would earn a total of  396.00  from holding Legg Mason Partners or generate 15.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	0.0%
Values	Daily Returns

Legg Mason Partners  vs.  Blue Chip 35

Legg Mason Partners

Risk-Adjusted Performance

16 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Legg Mason Partners are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak primary indicators, Legg Mason showed solid returns over the last few months and may actually be approaching a breakup point.

Blue Chip 35

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Blue Chip 35 has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Blue Chip 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 Blue Chip

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

The idea behind Legg Mason Partners and Blue Chip 35 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.