Correlation Between Metropolitan West and State Street
Can any of the company-specific risk be diversified away by investing in both Metropolitan West and State Street 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 State Street into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Metropolitan West High and State Street Target, you can compare the effects of market volatilities on Metropolitan West and State Street 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 State Street. Check out your portfolio center. Please also check ongoing floating volatility patterns of Metropolitan West and State Street.
Diversification Opportunities for Metropolitan West and State Street
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Metropolitan and State is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Metropolitan West High and State Street Target in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on State Street Target 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 High are associated (or correlated) with State Street. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of State Street Target has no effect on the direction of Metropolitan West i.e., Metropolitan West and State Street go up and down completely randomly.
Pair Corralation between Metropolitan West and State Street
Assuming the 90 days horizon Metropolitan West is expected to generate 1.36 times less return on investment than State Street. But when comparing it to its historical volatility, Metropolitan West High is 2.22 times less risky than State Street. It trades about 0.16 of its potential returns per unit of risk. State Street Target is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 1,095 in State Street Target on September 12, 2024 and sell it today you would earn a total of 204.00 from holding State Street Target or generate 18.63% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Metropolitan West High vs. State Street Target
Performance |
| Timeline |
| Metropolitan West High |
| State Street Target |
Metropolitan West and State Street Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Metropolitan West and State Street
The main advantage of trading using opposite Metropolitan West and State Street positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Metropolitan West position performs unexpectedly, State Street 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 State Street will offset losses from the drop in State Street's long position.| Metropolitan West vs. Federated Total Return | Metropolitan West vs. Global Bond Fund | Metropolitan West vs. Government Bond Fund | Metropolitan West vs. Aberdeen Global High |
| State Street vs. T Rowe Price | State Street vs. Us High Relative | State Street vs. Alliancebernstein Global High | State Street vs. Metropolitan West High |
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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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