Correlation Between Metropolitan West and Northern Short

Can any of the company-specific risk be diversified away by investing in both Metropolitan West and Northern Short 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 Northern Short 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 Northern Short Intermediate Tax Exempt, you can compare the effects of market volatilities on Metropolitan West and Northern Short 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 Northern Short. Check out your portfolio center. Please also check ongoing floating volatility patterns of Metropolitan West and Northern Short.

Diversification Opportunities for Metropolitan West and Northern Short

0.81

Correlation Coefficient

Metropolitan West  Northern Short

Very poor diversification

The 3 months correlation between Metropolitan and Northern is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Metropolitan West High and Northern Short Intermediate Ta in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Short Inter 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 Northern Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Short Inter has no effect on the direction of Metropolitan West i.e., Metropolitan West and Northern Short go up and down completely randomly.

Pair Corralation between Metropolitan West and Northern Short

Assuming the 90 days horizon Metropolitan West High is expected to under-perform the Northern Short. In addition to that, Metropolitan West is 1.14 times more volatile than Northern Short Intermediate Tax Exempt. It trades about -0.3 of its total potential returns per unit of risk. Northern Short Intermediate Tax Exempt is currently generating about -0.29 per unit of volatility. If you would invest  996.00  in Northern Short Intermediate Tax Exempt on September 24, 2024 and sell it today you would lose (7.00) from holding Northern Short Intermediate Tax Exempt or give up 0.7% of portfolio value over 90 days.

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

Metropolitan West High  vs.  Northern Short Intermediate Ta

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.

Northern Short Inter

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Northern Short Intermediate Tax Exempt has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Northern Short 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 Northern Short

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

The idea behind Metropolitan West High and Northern Short Intermediate Tax Exempt 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.