Correlation Between Legg Mason and Franklin International

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

By analyzing existing cross correlation between Legg Mason International and Franklin International Core, you can compare the effects of market volatilities on Legg Mason and Franklin International 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 Franklin International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Legg Mason and Franklin International.

Diversification Opportunities for Legg Mason and Franklin International

0.72

Correlation Coefficient

Legg Mason  Franklin International

Poor diversification

The 3 months correlation between Legg and Franklin is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Legg Mason International and Franklin International Core in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin International 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 International are associated (or correlated) with Franklin International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin International has no effect on the direction of Legg Mason i.e., Legg Mason and Franklin International go up and down completely randomly.

Pair Corralation between Legg Mason and Franklin International

Given the investment horizon of 90 days Legg Mason International is expected to generate 0.68 times more return on investment than Franklin International. However, Legg Mason International is 1.46 times less risky than Franklin International. It trades about 0.22 of its potential returns per unit of risk. Franklin International Core is currently generating about 0.12 per unit of risk. If you would invest  2,865  in Legg Mason International on February 23, 2024 and sell it today you would earn a total of  187.00  from holding Legg Mason International or generate 6.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Legg Mason International  vs.  Franklin International Core

Legg Mason International

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Legg Mason International are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong technical indicators, Legg Mason is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Franklin International

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin International Core are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Franklin International is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Legg Mason and Franklin International

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

The idea behind Legg Mason International and Franklin International Core 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.