Correlation Between Metropolitan West and Value Line
Can any of the company-specific risk be diversified away by investing in both Metropolitan West and Value Line 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 Value Line 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 Value Line Mid, you can compare the effects of market volatilities on Metropolitan West and Value Line 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 Value Line. Check out your portfolio center. Please also check ongoing floating volatility patterns of Metropolitan West and Value Line.
Diversification Opportunities for Metropolitan West and Value Line
0.33 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Metropolitan and Value is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Metropolitan West High and Value Line Mid in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Value Line Mid 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 Value Line. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Value Line Mid has no effect on the direction of Metropolitan West i.e., Metropolitan West and Value Line go up and down completely randomly.
Pair Corralation between Metropolitan West and Value Line
Assuming the 90 days horizon Metropolitan West is expected to generate 1.07 times less return on investment than Value Line. But when comparing it to its historical volatility, Metropolitan West High is 6.34 times less risky than Value Line. It trades about 0.08 of its potential returns per unit of risk. Value Line Mid is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest 3,682 in Value Line Mid on September 12, 2024 and sell it today you would earn a total of 18.00 from holding Value Line Mid or generate 0.49% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Metropolitan West High vs. Value Line Mid
Performance |
| Timeline |
| Metropolitan West High |
| Value Line Mid |
Metropolitan West and Value Line Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Metropolitan West and Value Line
The main advantage of trading using opposite Metropolitan West and Value Line positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Metropolitan West position performs unexpectedly, Value Line 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 Value Line will offset losses from the drop in Value Line'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 |
| Value Line vs. Tax Free Conservative Income | Value Line vs. Calvert Conservative Allocation | Value Line vs. Wealthbuilder Conservative Allocation | Value Line vs. Blackrock Conservative Prprdptfinstttnl |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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