Correlation Between Large Cap and Metropolitan West
Can any of the company-specific risk be diversified away by investing in both Large 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 Large 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 Large Cap Growth and Metropolitan West Total, you can compare the effects of market volatilities on Large 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 Large Cap with a short position of Metropolitan West. Check out your portfolio center. Please also check ongoing floating volatility patterns of Large Cap and Metropolitan West.
Diversification Opportunities for Large Cap and Metropolitan West
-0.75 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Large and Metropolitan is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding Large Cap Growth and Metropolitan West Total in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metropolitan West Total and Large 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 Large Cap 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 Total has no effect on the direction of Large Cap i.e., Large Cap and Metropolitan West go up and down completely randomly.
Pair Corralation between Large Cap and Metropolitan West
Assuming the 90 days horizon Large Cap Growth is expected to generate 2.49 times more return on investment than Metropolitan West. However, Large Cap is 2.49 times more volatile than Metropolitan West Total. It trades about 0.12 of its potential returns per unit of risk. Metropolitan West Total is currently generating about -0.24 per unit of risk. If you would invest 3,567 in Large Cap Growth on August 25, 2024 and sell it today you would earn a total of 166.00 from holding Large Cap Growth or generate 4.65% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Large Cap Growth vs. Metropolitan West Total
Performance |
| Timeline |
| Large Cap Growth |
| Metropolitan West Total |
Large Cap and Metropolitan West Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Large Cap and Metropolitan West
The main advantage of trading using opposite Large Cap and Metropolitan West positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Large 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.| Large Cap vs. Large Cap E | Large Cap vs. International Fund International | Large Cap vs. Parnassus Endeavor Fund | Large Cap vs. Parnassus E Equity |
| Metropolitan West vs. Loomis Sayles Bond | Metropolitan West vs. Doubleline Total Return | Metropolitan West vs. Baird E Plus | Metropolitan West vs. Harbor International Fund |
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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