Correlation Between Tesla and Legg Mason

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Can any of the company-specific risk be diversified away by investing in both Tesla 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 Tesla and Legg Mason into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Tesla Inc and Legg Mason Bw, you can compare the effects of market volatilities on Tesla 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 Tesla with a short position of Legg Mason. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tesla and Legg Mason.

Diversification Opportunities for Tesla and Legg Mason

0.79
  Correlation Coefficient

Poor diversification

The 3 months correlation between Tesla and Legg is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Tesla Inc 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 Tesla 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 Tesla Inc 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 Tesla i.e., Tesla and Legg Mason go up and down completely randomly.

Pair Corralation between Tesla and Legg Mason

Given the investment horizon of 90 days Tesla Inc is expected to under-perform the Legg Mason. In addition to that, Tesla is 7.35 times more volatile than Legg Mason Bw. It trades about -0.15 of its total potential returns per unit of risk. Legg Mason Bw is currently generating about 0.07 per unit of volatility. If you would invest  857.00  in Legg Mason Bw on December 29, 2023 and sell it today you would earn a total of  5.00  from holding Legg Mason Bw or generate 0.58% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Tesla Inc  vs.  LEGG MASON BW

 Performance 
       Timeline  
Tesla Inc 

Risk-Adjusted Performance

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Very Weak
Over the last 90 days Tesla Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's essential indicators remain somewhat strong which may send shares a bit higher in April 2024. The current disturbance may also be a sign of long term up-swing for the company investors.
Legg Mason Bw 

Risk-Adjusted Performance

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Low
 
High
Very Weak
Over the last 90 days Legg Mason Bw has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Legg Mason is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Tesla and Legg Mason Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Tesla and Legg Mason

The main advantage of trading using opposite Tesla and Legg Mason positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tesla 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 Tesla Inc 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.

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