Correlation Between Metropolitan West and Parnassus Endeavor

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

By analyzing existing cross correlation between Metropolitan West Total and Parnassus Endeavor Fund, you can compare the effects of market volatilities on Metropolitan West and Parnassus Endeavor 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 Parnassus Endeavor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Metropolitan West and Parnassus Endeavor.

Diversification Opportunities for Metropolitan West and Parnassus Endeavor

-0.56

Correlation Coefficient

Metropolitan West  Parnassus Endeavor

Excellent diversification

The 3 months correlation between Metropolitan and Parnassus is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Metropolitan West Total and Parnassus Endeavor Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Parnassus Endeavor 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 Total are associated (or correlated) with Parnassus Endeavor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Parnassus Endeavor has no effect on the direction of Metropolitan West i.e., Metropolitan West and Parnassus Endeavor go up and down completely randomly.

Pair Corralation between Metropolitan West and Parnassus Endeavor

Assuming the 90 days horizon Metropolitan West Total is expected to under-perform the Parnassus Endeavor. But the mutual fund apears to be less risky and, when comparing its historical volatility, Metropolitan West Total is 1.9 times less risky than Parnassus Endeavor. The mutual fund trades about -0.05 of its potential returns per unit of risk. The Parnassus Endeavor Fund is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  5,535  in Parnassus Endeavor Fund on September 3, 2024 and sell it today you would earn a total of  442.00  from holding Parnassus Endeavor Fund or generate 7.99% return on investment over 90 days.

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

Metropolitan West Total  vs.  Parnassus Endeavor Fund

Metropolitan West Total

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Metropolitan West Total has generated negative risk-adjusted returns adding no value to fund investors. 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.

Parnassus Endeavor

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Parnassus Endeavor Fund are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Parnassus Endeavor may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Metropolitan West and Parnassus Endeavor

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

The idea behind Metropolitan West Total and Parnassus Endeavor Fund 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 Global Correlations module to find global opportunities by holding instruments from different markets.