Correlation Between Metropolitan West and Intermediate Term

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

Diversification Opportunities for Metropolitan West and Intermediate Term

1.0

Correlation Coefficient

Metropolitan West  Intermediate Term

No risk reduction

The 3 months correlation between Metropolitan and Intermediate is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Metropolitan West Total and Intermediate Term Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Intermediate Term Bond 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 Intermediate Term. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Intermediate Term Bond has no effect on the direction of Metropolitan West i.e., Metropolitan West and Intermediate Term go up and down completely randomly.

Pair Corralation between Metropolitan West and Intermediate Term

Assuming the 90 days horizon Metropolitan West Total is expected to under-perform the Intermediate Term. In addition to that, Metropolitan West is 1.2 times more volatile than Intermediate Term Bond Fund. It trades about -0.11 of its total potential returns per unit of risk. Intermediate Term Bond Fund is currently generating about -0.1 per unit of volatility. If you would invest  940.00  in Intermediate Term Bond Fund on September 12, 2024 and sell it today you would lose (17.00) from holding Intermediate Term Bond Fund or give up 1.81% of portfolio value over 90 days.

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

Metropolitan West Total  vs.  Intermediate Term Bond 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.

Intermediate Term Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Intermediate Term Bond Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental drivers, Intermediate Term 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 Intermediate Term

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

The idea behind Metropolitan West Total and Intermediate Term Bond 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.

Check out your portfolio center.

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.