Correlation Between Western Asset and Metropolitan West
Can any of the company-specific risk be diversified away by investing in both Western Asset 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 Western Asset and Metropolitan West into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Western Asset E and Metropolitan West Total, you can compare the effects of market volatilities on Western Asset 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 Western Asset with a short position of Metropolitan West. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Asset and Metropolitan West.
Diversification Opportunities for Western Asset and Metropolitan West
0.97 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Western and Metropolitan is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset E 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 Western Asset 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 Western Asset E 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 Western Asset i.e., Western Asset and Metropolitan West go up and down completely randomly.
Pair Corralation between Western Asset and Metropolitan West
Assuming the 90 days horizon Western Asset E is expected to generate 0.95 times more return on investment than Metropolitan West. However, Western Asset E is 1.05 times less risky than Metropolitan West. It trades about -0.03 of its potential returns per unit of risk. Metropolitan West Total is currently generating about -0.1 per unit of risk. If you would invest 921.00 in Western Asset E on August 24, 2024 and sell it today you would lose (2.00) from holding Western Asset E or give up 0.22% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 95.65% |
| Values | Daily Returns |
Western Asset E vs. Metropolitan West Total
Performance |
| Timeline |
| Western Asset E |
| Metropolitan West Total |
Western Asset and Metropolitan West Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Western Asset and Metropolitan West
The main advantage of trading using opposite Western Asset and Metropolitan West positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Asset 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.| Western Asset vs. Metropolitan West Total | Western Asset vs. Metropolitan West Total | Western Asset vs. Pimco Total Return | Western Asset vs. Total Return Fund |
| Metropolitan West vs. Jhancock Disciplined Value | Metropolitan West vs. Aqr Large Cap | Metropolitan West vs. Knights Of Umbus | Metropolitan West vs. Aqr Large Cap |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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