Correlation Between LG Russell and Legal General

Can any of the company-specific risk be diversified away by investing in both LG Russell and Legal General 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 LG Russell and Legal General into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between LG Russell 2000 and Legal General UCITS, you can compare the effects of market volatilities on LG Russell and Legal General 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 LG Russell with a short position of Legal General. Check out your portfolio center. Please also check ongoing floating volatility patterns of LG Russell and Legal General.

Diversification Opportunities for LG Russell and Legal General

0.54

Correlation Coefficient

LG Russell  Legal General

Very weak diversification

The 3 months correlation between RTWO and Legal is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding LG Russell 2000 and Legal General UCITS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Legal General UCITS and LG Russell 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 LG Russell 2000 are associated (or correlated) with Legal General. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Legal General UCITS has no effect on the direction of LG Russell i.e., LG Russell and Legal General go up and down completely randomly.

Pair Corralation between LG Russell and Legal General

Assuming the 90 days trading horizon LG Russell 2000 is expected to generate 0.99 times more return on investment than Legal General. However, LG Russell 2000 is 1.01 times less risky than Legal General. It trades about 0.07 of its potential returns per unit of risk. Legal General UCITS is currently generating about 0.01 per unit of risk. If you would invest  8,042  in LG Russell 2000 on September 26, 2024 and sell it today you would earn a total of  2,184  from holding LG Russell 2000 or generate 27.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.68%
Values	Daily Returns

LG Russell 2000  vs.  Legal General UCITS

LG Russell 2000

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in LG Russell 2000 are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, LG Russell may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Legal General UCITS

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Legal General UCITS are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Legal General is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with LG Russell and Legal General

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

The idea behind LG Russell 2000 and Legal General UCITS 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.