Correlation Between Metropolitan West and Lord Abbett

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

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

Diversification Opportunities for Metropolitan West and Lord Abbett

0.47

Correlation Coefficient

Metropolitan West  Lord Abbett

Very weak diversification

The 3 months correlation between Metropolitan and Lord is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Metropolitan West High and Lord Abbett Alpha in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lord Abbett Alpha and Metropolitan West 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 Metropolitan West High are associated (or correlated) with Lord Abbett. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lord Abbett Alpha has no effect on the direction of Metropolitan West i.e., Metropolitan West and Lord Abbett go up and down completely randomly.

Pair Corralation between Metropolitan West and Lord Abbett

Assuming the 90 days horizon Metropolitan West is expected to generate 1.47 times less return on investment than Lord Abbett. But when comparing it to its historical volatility, Metropolitan West High is 4.14 times less risky than Lord Abbett. It trades about 0.13 of its potential returns per unit of risk. Lord Abbett Alpha is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  2,315  in Lord Abbett Alpha on October 3, 2024 and sell it today you would earn a total of  391.00  from holding Lord Abbett Alpha or generate 16.89% return on investment over 90 days.

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

Metropolitan West High  vs.  Lord Abbett Alpha

Metropolitan West High

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Metropolitan West High 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.

Lord Abbett Alpha

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Metropolitan West and Lord Abbett

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

The idea behind Metropolitan West High and Lord Abbett Alpha 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.