Correlation Between Metropolitan West and Extended Market
Can any of the company-specific risk be diversified away by investing in both Metropolitan West and Extended Market 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 Extended Market 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 Extended Market Index, you can compare the effects of market volatilities on Metropolitan West and Extended Market 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 Extended Market. Check out your portfolio center. Please also check ongoing floating volatility patterns of Metropolitan West and Extended Market.
Diversification Opportunities for Metropolitan West and Extended Market
0.03 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Metropolitan and Extended is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Metropolitan West High and Extended Market Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Extended Market Index 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 Extended Market. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Extended Market Index has no effect on the direction of Metropolitan West i.e., Metropolitan West and Extended Market go up and down completely randomly.
Pair Corralation between Metropolitan West and Extended Market
Assuming the 90 days horizon Metropolitan West High is expected to generate 0.19 times more return on investment than Extended Market. However, Metropolitan West High is 5.27 times less risky than Extended Market. It trades about 0.22 of its potential returns per unit of risk. Extended Market Index is currently generating about -0.37 per unit of risk. If you would invest 926.00 in Metropolitan West High on December 1, 2024 and sell it today you would earn a total of 7.00 from holding Metropolitan West High or generate 0.76% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Metropolitan West High vs. Extended Market Index
Performance |
| Timeline |
| Metropolitan West High |
| Extended Market Index |
Metropolitan West and Extended Market Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Metropolitan West and Extended Market
The main advantage of trading using opposite Metropolitan West and Extended Market positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Metropolitan West position performs unexpectedly, Extended Market 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 Extended Market will offset losses from the drop in Extended Market'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 |
| Extended Market vs. Harbor Diversified International | Extended Market vs. Elfun Diversified Fund | Extended Market vs. Delaware Limited Term Diversified | Extended Market vs. Fidelity Advisor Diversified |
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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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