Correlation Between Small Cap and Metropolitan West
Can any of the company-specific risk be diversified away by investing in both Small Cap 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 Small Cap and Metropolitan West into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Small Cap Value and Metropolitan West Unconstrained, you can compare the effects of market volatilities on Small Cap 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 Small Cap with a short position of Metropolitan West. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Metropolitan West.
Diversification Opportunities for Small Cap and Metropolitan West
-0.31 | Correlation Coefficient |
Very good diversification
The 3 months correlation between SMALL and Metropolitan is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Value and Metropolitan West Unconstraine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metropolitan West and Small Cap 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 Small Cap Value 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 has no effect on the direction of Small Cap i.e., Small Cap and Metropolitan West go up and down completely randomly.
Pair Corralation between Small Cap and Metropolitan West
Assuming the 90 days horizon Small Cap Value is expected to generate 4.73 times more return on investment than Metropolitan West. However, Small Cap is 4.73 times more volatile than Metropolitan West Unconstrained. It trades about 0.04 of its potential returns per unit of risk. Metropolitan West Unconstrained is currently generating about 0.1 per unit of risk. If you would invest 954.00 in Small Cap Value on September 3, 2024 and sell it today you would earn a total of 265.00 from holding Small Cap Value or generate 27.78% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Cap Value vs. Metropolitan West Unconstraine
Performance |
| Timeline |
| Small Cap Value |
| Metropolitan West |
Small Cap and Metropolitan West Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Metropolitan West
The main advantage of trading using opposite Small Cap and Metropolitan West positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap 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.| Small Cap vs. Vanguard Small Cap Value | Small Cap vs. Vanguard Small Cap Value | Small Cap vs. Us Small Cap | Small Cap vs. Us Targeted Value |
| Metropolitan West vs. Qs Small Capitalization | Metropolitan West vs. Champlain Small | Metropolitan West vs. Small Cap Value | Metropolitan West vs. Rbc Small Cap |
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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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