Correlation Between Gmo High and Metropolitan West
Can any of the company-specific risk be diversified away by investing in both Gmo High 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 Gmo High and Metropolitan West into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Gmo High Yield and Metropolitan West High, you can compare the effects of market volatilities on Gmo High 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 Gmo High with a short position of Metropolitan West. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gmo High and Metropolitan West.
Diversification Opportunities for Gmo High and Metropolitan West
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between GMO and Metropolitan is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Gmo High Yield and Metropolitan West High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metropolitan West High and Gmo High 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 Gmo High Yield 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 High has no effect on the direction of Gmo High i.e., Gmo High and Metropolitan West go up and down completely randomly.
Pair Corralation between Gmo High and Metropolitan West
Assuming the 90 days horizon Gmo High Yield is expected to generate 1.64 times more return on investment than Metropolitan West. However, Gmo High is 1.64 times more volatile than Metropolitan West High. It trades about 0.36 of its potential returns per unit of risk. Metropolitan West High is currently generating about 0.09 per unit of risk. If you would invest 1,784 in Gmo High Yield on September 4, 2024 and sell it today you would earn a total of 24.00 from holding Gmo High Yield or generate 1.35% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Gmo High Yield vs. Metropolitan West High
Performance |
| Timeline |
| Gmo High Yield |
| Metropolitan West High |
Gmo High and Metropolitan West Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Gmo High and Metropolitan West
The main advantage of trading using opposite Gmo High and Metropolitan West positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gmo High 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.| Gmo High vs. California High Yield Municipal | Gmo High vs. Siit High Yield | Gmo High vs. Pace High Yield |
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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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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