Correlation Between Large Company and Metropolitan West

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

By analyzing existing cross correlation between Large Pany Growth and Metropolitan West Porate, you can compare the effects of market volatilities on Large Company and Metropolitan West 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 Large Company with a short position of Metropolitan West. Check out your portfolio center. Please also check ongoing floating volatility patterns of Large Company and Metropolitan West.

Diversification Opportunities for Large Company and Metropolitan West

-0.03

Correlation Coefficient

Large Company  Metropolitan West

Good diversification

The 3 months correlation between Large and Metropolitan is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Large Pany Growth and Metropolitan West Porate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metropolitan West Porate and Large Company 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 Large Pany Growth are associated (or correlated) with Metropolitan West. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Metropolitan West Porate has no effect on the direction of Large Company i.e., Large Company and Metropolitan West go up and down completely randomly.

Pair Corralation between Large Company and Metropolitan West

Assuming the 90 days horizon Large Pany Growth is expected to generate 2.68 times more return on investment than Metropolitan West. However, Large Company is 2.68 times more volatile than Metropolitan West Porate. It trades about 0.09 of its potential returns per unit of risk. Metropolitan West Porate is currently generating about 0.04 per unit of risk. If you would invest  3,324  in Large Pany Growth on October 26, 2024 and sell it today you would earn a total of  2,210  from holding Large Pany Growth or generate 66.49% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Large Pany Growth  vs.  Metropolitan West Porate

Large Pany Growth

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Large Pany Growth are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Large Company is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Metropolitan West Porate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Metropolitan West Porate 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.

Pair Trading with Large Company and Metropolitan West

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

The idea behind Large Pany Growth and Metropolitan West Porate 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.