Correlation Between Metropolitan West and Global Diversified

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

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

Diversification Opportunities for Metropolitan West and Global Diversified

0.8

Correlation Coefficient

Metropolitan West  Global Diversified

Very poor diversification

The 3 months correlation between Metropolitan and Global is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Metropolitan West Ultra and Global Diversified Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Diversified Income 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 Ultra are associated (or correlated) with Global Diversified. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Diversified Income has no effect on the direction of Metropolitan West i.e., Metropolitan West and Global Diversified go up and down completely randomly.

Pair Corralation between Metropolitan West and Global Diversified

Assuming the 90 days horizon Metropolitan West is expected to generate 1.34 times less return on investment than Global Diversified. But when comparing it to its historical volatility, Metropolitan West Ultra is 1.3 times less risky than Global Diversified. It trades about 0.11 of its potential returns per unit of risk. Global Diversified Income is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,055  in Global Diversified Income on September 18, 2024 and sell it today you would earn a total of  145.00  from holding Global Diversified Income or generate 13.74% return on investment over 90 days.

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

Metropolitan West Ultra  vs.  Global Diversified Income

Metropolitan West Ultra

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Metropolitan West Ultra 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.

Global Diversified Income

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Global Diversified Income has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Global Diversified 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 Global Diversified

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

The idea behind Metropolitan West Ultra and Global Diversified Income 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..