Correlation Between Kinetics Small and Metropolitan West

Can any of the company-specific risk be diversified away by investing in both Kinetics 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 Kinetics 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 Kinetics Small Cap and Metropolitan West Ultra, you can compare the effects of market volatilities on Kinetics 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 Kinetics Small with a short position of Metropolitan West. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kinetics Small and Metropolitan West.

Diversification Opportunities for Kinetics Small and Metropolitan West

0.28

Correlation Coefficient

Kinetics Small  Metropolitan West

Modest diversification

The 3 months correlation between Kinetics and Metropolitan is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Kinetics Small Cap and Metropolitan West Ultra in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metropolitan West Ultra and Kinetics 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 Kinetics 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 Ultra has no effect on the direction of Kinetics Small i.e., Kinetics Small and Metropolitan West go up and down completely randomly.

Pair Corralation between Kinetics Small and Metropolitan West

Assuming the 90 days horizon Kinetics Small Cap is expected to generate 14.77 times more return on investment than Metropolitan West. However, Kinetics Small is 14.77 times more volatile than Metropolitan West Ultra. It trades about 0.05 of its potential returns per unit of risk. Metropolitan West Ultra is currently generating about 0.2 per unit of risk. If you would invest  17,889  in Kinetics Small Cap on December 23, 2024 and sell it today you would earn a total of  855.00  from holding Kinetics Small Cap or generate 4.78% return on investment over 90 days.

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

Kinetics Small Cap  vs.  Metropolitan West Ultra

Kinetics Small Cap

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Kinetics Small Cap are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Kinetics Small is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Metropolitan West Ultra

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Metropolitan West Ultra are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. 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 Kinetics Small and Metropolitan West

The main advantage of trading using opposite Kinetics Small and Metropolitan West positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kinetics 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 Kinetics Small Cap and Metropolitan West Ultra 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.