Correlation Between Western Asset and Legg Mason

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

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

Diversification Opportunities for Western Asset and Legg Mason

-0.55

Correlation Coefficient

Western Asset  Legg Mason

Excellent diversification

The 3 months correlation between Western and Legg is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset Short Term and Legg Mason Bw in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Legg Mason Bw and Western Asset 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 Western Asset Short Term 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 Bw has no effect on the direction of Western Asset i.e., Western Asset and Legg Mason go up and down completely randomly.

Pair Corralation between Western Asset and Legg Mason

Assuming the 90 days horizon Western Asset Short Term is expected to under-perform the Legg Mason. But the mutual fund apears to be less risky and, when comparing its historical volatility, Western Asset Short Term is 5.04 times less risky than Legg Mason. The mutual fund trades about -0.03 of its potential returns per unit of risk. The Legg Mason Bw is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  2,181  in Legg Mason Bw on September 4, 2024 and sell it today you would earn a total of  193.00  from holding Legg Mason Bw or generate 8.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Western Asset Short Term  vs.  Legg Mason Bw

Western Asset Short

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Western Asset Short Term has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong essential indicators, Western Asset is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Legg Mason Bw

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Legg Mason Bw are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Legg Mason may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Western Asset and Legg Mason

The main advantage of trading using opposite Western Asset and Legg Mason positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Asset 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 Western Asset Short Term and Legg Mason Bw 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 .