Correlation Between Legg Mason and Prudential Jennison

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

Diversification Opportunities for Legg Mason and Prudential Jennison

0.82

Correlation Coefficient

Legg Mason  Prudential Jennison

Very poor diversification

The 3 months correlation between Legg and Prudential is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Legg Mason Bw and Prudential Jennison Internatio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Jennison 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 Prudential Jennison. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Jennison has no effect on the direction of Legg Mason i.e., Legg Mason and Prudential Jennison go up and down completely randomly.

Pair Corralation between Legg Mason and Prudential Jennison

Assuming the 90 days horizon Legg Mason Bw is expected to generate 0.91 times more return on investment than Prudential Jennison. However, Legg Mason Bw is 1.1 times less risky than Prudential Jennison. It trades about -0.14 of its potential returns per unit of risk. Prudential Jennison International is currently generating about -0.32 per unit of risk. If you would invest  2,026  in Legg Mason Bw on January 19, 2024 and sell it today you would lose (48.00) from holding Legg Mason Bw or give up 2.37% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Legg Mason Bw  vs.  Prudential Jennison Internatio

Legg Mason Bw

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Legg Mason Bw are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Legg Mason is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Prudential Jennison

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Prudential Jennison International are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Prudential Jennison 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 Prudential Jennison

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

The idea behind Legg Mason Bw and Prudential Jennison International 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.