Correlation Between Legg Mason and Capital World
Can any of the company-specific risk be diversified away by investing in both Legg Mason and Capital World 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 Capital World into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Legg Mason Bw and Capital World Bond, you can compare the effects of market volatilities on Legg Mason and Capital World 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 Capital World. Check out your portfolio center. Please also check ongoing floating volatility patterns of Legg Mason and Capital World.
Diversification Opportunities for Legg Mason and Capital World
0.93 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Legg and Capital is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Legg Mason Bw and Capital World Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital World Bond 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 Bw are associated (or correlated) with Capital World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital World Bond has no effect on the direction of Legg Mason i.e., Legg Mason and Capital World go up and down completely randomly.
Pair Corralation between Legg Mason and Capital World
Assuming the 90 days horizon Legg Mason Bw is expected to generate 1.65 times more return on investment than Capital World. However, Legg Mason is 1.65 times more volatile than Capital World Bond. It trades about 0.05 of its potential returns per unit of risk. Capital World Bond is currently generating about 0.08 per unit of risk. If you would invest 784.00 in Legg Mason Bw on January 20, 2024 and sell it today you would earn a total of 37.00 from holding Legg Mason Bw or generate 4.72% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Legg Mason Bw vs. Capital World Bond
Performance |
| Timeline |
| Legg Mason Bw |
| Capital World Bond |
Legg Mason and Capital World Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Legg Mason and Capital World
The main advantage of trading using opposite Legg Mason and Capital World positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Legg Mason position performs unexpectedly, Capital World 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 Capital World will offset losses from the drop in Capital World's long position.| Legg Mason vs. Clearbridge Aggressive Growth | Legg Mason vs. Clearbridge Small Cap | Legg Mason vs. Qs International Dividend | Legg Mason vs. Qs International Dividend |
| Capital World vs. Income Fund Of | Capital World vs. New World Fund | Capital World vs. American Mutual Fund | Capital World vs. American Mutual Fund |
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 AI Investment Finder module to use AI to screen and filter profitable investment opportunities.
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