Correlation Between Century Small and Metropolitan West

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

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

Diversification Opportunities for Century Small and Metropolitan West

0.21

Correlation Coefficient

Century Small  Metropolitan West

Modest diversification

The 3 months correlation between Century and Metropolitan is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Century Small Cap 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 Century Small 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 Century Small Cap 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 Century Small i.e., Century Small and Metropolitan West go up and down completely randomly.

Pair Corralation between Century Small and Metropolitan West

Assuming the 90 days horizon Century Small Cap is expected to under-perform the Metropolitan West. In addition to that, Century Small is 3.41 times more volatile than Metropolitan West Total. It trades about -0.16 of its total potential returns per unit of risk. Metropolitan West Total is currently generating about 0.05 per unit of volatility. If you would invest  904.00  in Metropolitan West Total on December 4, 2024 and sell it today you would earn a total of  9.00  from holding Metropolitan West Total or generate 1.0% return on investment over 90 days.

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

Century Small Cap  vs.  Metropolitan West Total

Century Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Century Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Metropolitan West Total

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Metropolitan West Total are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. 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 Century Small and Metropolitan West

The main advantage of trading using opposite Century Small and Metropolitan West positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Century Small 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 Century Small Cap 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.

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 Global Correlations module to find global opportunities by holding instruments from different markets.