Correlation Between Baird E and Metropolitan West

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

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

Diversification Opportunities for Baird E and Metropolitan West

0.99

Correlation Coefficient

Baird E  Metropolitan West

No risk reduction

The 3 months correlation between Baird and Metropolitan is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Baird E Plus and Metropolitan West Intermediate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metropolitan West and Baird E 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 Baird E Plus 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 has no effect on the direction of Baird E i.e., Baird E and Metropolitan West go up and down completely randomly.

Pair Corralation between Baird E and Metropolitan West

Assuming the 90 days horizon Baird E Plus is expected to generate 1.15 times more return on investment than Metropolitan West. However, Baird E is 1.15 times more volatile than Metropolitan West Intermediate. It trades about 0.04 of its potential returns per unit of risk. Metropolitan West Intermediate is currently generating about 0.04 per unit of risk. If you would invest  1,032  in Baird E Plus on September 17, 2024 and sell it today you would earn a total of  32.00  from holding Baird E Plus or generate 3.1% return on investment over 90 days.

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

Baird E Plus  vs.  Metropolitan West Intermediate

Baird E Plus

Risk-Adjusted Performance

0 of 100

Very Weak

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

Metropolitan West

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Metropolitan West Intermediate has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward 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 Baird E and Metropolitan West

The main advantage of trading using opposite Baird E and Metropolitan West positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Baird E 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 Baird E Plus and Metropolitan West Intermediate 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.