Correlation Between Core Plus and Metropolitan West

Can any of the company-specific risk be diversified away by investing in both Core Plus and Metropolitan West 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 Core Plus and Metropolitan West into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Core Plus Fund and Metropolitan West Total, you can compare the effects of market volatilities on Core Plus and Metropolitan West 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 Core Plus with a short position of Metropolitan West. Check out your portfolio center. Please also check ongoing floating volatility patterns of Core Plus and Metropolitan West.

Diversification Opportunities for Core Plus and Metropolitan West

0.44

Correlation Coefficient

Core Plus  Metropolitan West

Very weak diversification

The 3 months correlation between Core and Metropolitan is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Core Plus Fund and Metropolitan West Total in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metropolitan West Total and Core Plus 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 Core Plus Fund are associated (or correlated) with Metropolitan West. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Metropolitan West Total has no effect on the direction of Core Plus i.e., Core Plus and Metropolitan West go up and down completely randomly.

Pair Corralation between Core Plus and Metropolitan West

Assuming the 90 days horizon Core Plus Fund is expected to generate 0.77 times more return on investment than Metropolitan West. However, Core Plus Fund is 1.3 times less risky than Metropolitan West. It trades about -0.46 of its potential returns per unit of risk. Metropolitan West Total is currently generating about -0.44 per unit of risk. If you would invest  928.00  in Core Plus Fund on October 5, 2024 and sell it today you would lose (20.00) from holding Core Plus Fund or give up 2.16% of portfolio value over 90 days.

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

Core Plus Fund  vs.  Metropolitan West Total

Core Plus Fund

Risk-Adjusted Performance

0 of 100

Very Weak

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

Metropolitan West Total

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Core Plus and Metropolitan West

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

The idea behind Core Plus Fund and Metropolitan West Total 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.