Correlation Between Energy Services and Metropolitan West
Can any of the company-specific risk be diversified away by investing in both Energy Services 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 Energy Services and Metropolitan West into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Energy Services Fund and Metropolitan West Unconstrained, you can compare the effects of market volatilities on Energy Services 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 Energy Services with a short position of Metropolitan West. Check out your portfolio center. Please also check ongoing floating volatility patterns of Energy Services and Metropolitan West.
Diversification Opportunities for Energy Services and Metropolitan West
0.02 | Correlation Coefficient |
Significant diversification
The 3 months correlation between ENERGY and Metropolitan is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Energy Services Fund and Metropolitan West Unconstraine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metropolitan West and Energy Services 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 Energy Services Fund 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 has no effect on the direction of Energy Services i.e., Energy Services and Metropolitan West go up and down completely randomly.
Pair Corralation between Energy Services and Metropolitan West
Assuming the 90 days horizon Energy Services Fund is expected to generate 12.17 times more return on investment than Metropolitan West. However, Energy Services is 12.17 times more volatile than Metropolitan West Unconstrained. It trades about 0.22 of its potential returns per unit of risk. Metropolitan West Unconstrained is currently generating about 0.14 per unit of risk. If you would invest 22,166 in Energy Services Fund on September 1, 2024 and sell it today you would earn a total of 2,461 from holding Energy Services Fund or generate 11.1% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Energy Services Fund vs. Metropolitan West Unconstraine
Performance |
| Timeline |
| Energy Services |
| Metropolitan West |
Energy Services and Metropolitan West Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Energy Services and Metropolitan West
The main advantage of trading using opposite Energy Services and Metropolitan West positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Energy Services 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.| Energy Services vs. Basic Materials Fund | Energy Services vs. Electronics Fund Investor | Energy Services vs. Health Care Fund | Energy Services vs. Precious Metals Fund |
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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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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