Correlation Between Legg Mason and Dunham Floating

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

Diversification Opportunities for Legg Mason and Dunham Floating

0.88

Correlation Coefficient

Legg Mason  Dunham Floating

Very poor diversification

The 3 months correlation between Legg and Dunham is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Legg Mason Partners and Dunham Floating Rate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dunham Floating Rate 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 Dunham Floating. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dunham Floating Rate has no effect on the direction of Legg Mason i.e., Legg Mason and Dunham Floating go up and down completely randomly.

Pair Corralation between Legg Mason and Dunham Floating

Assuming the 90 days trading horizon Legg Mason Partners is expected to generate 11.94 times more return on investment than Dunham Floating. However, Legg Mason is 11.94 times more volatile than Dunham Floating Rate. It trades about 0.21 of its potential returns per unit of risk. Dunham Floating Rate is currently generating about 0.32 per unit of risk. If you would invest  2,487  in Legg Mason Partners on September 2, 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	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Legg Mason Partners  vs.  Dunham Floating Rate

Legg Mason Partners

Risk-Adjusted Performance

16 of 100

Solid

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.

Dunham Floating Rate

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Dunham Floating Rate are ranked lower than 25 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Dunham Floating 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 Dunham Floating

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

The idea behind Legg Mason Partners and Dunham Floating Rate 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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.