Correlation Between Metropolitan West and Inverse Mid-cap

Can any of the company-specific risk be diversified away by investing in both Metropolitan West and Inverse Mid-cap 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 Inverse Mid-cap 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 Inverse Mid Cap Strategy, you can compare the effects of market volatilities on Metropolitan West and Inverse Mid-cap 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 Inverse Mid-cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Metropolitan West and Inverse Mid-cap.

Diversification Opportunities for Metropolitan West and Inverse Mid-cap

-0.04

Correlation Coefficient

Metropolitan West  Inverse Mid-cap

Good diversification

The 3 months correlation between Metropolitan and Inverse is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Metropolitan West High and Inverse Mid Cap Strategy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inverse Mid Cap 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 Inverse Mid-cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inverse Mid Cap has no effect on the direction of Metropolitan West i.e., Metropolitan West and Inverse Mid-cap go up and down completely randomly.

Pair Corralation between Metropolitan West and Inverse Mid-cap

Assuming the 90 days horizon Metropolitan West is expected to generate 25.16 times less return on investment than Inverse Mid-cap. But when comparing it to its historical volatility, Metropolitan West High is 22.29 times less risky than Inverse Mid-cap. It trades about 0.05 of its potential returns per unit of risk. Inverse Mid Cap Strategy is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  3,642  in Inverse Mid Cap Strategy on November 28, 2024 and sell it today you would earn a total of  369.00  from holding Inverse Mid Cap Strategy or generate 10.13% return on investment over 90 days.

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

Metropolitan West High  vs.  Inverse Mid Cap Strategy

Metropolitan West High

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Metropolitan West High are ranked lower than 4 (%) 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.

Inverse Mid Cap

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Inverse Mid Cap Strategy are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Inverse Mid-cap showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Metropolitan West and Inverse Mid-cap

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

The idea behind Metropolitan West High and Inverse Mid Cap Strategy 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.