Correlation Between Metropolitan West and Firsthand Technology

Can any of the company-specific risk be diversified away by investing in both Metropolitan West and Firsthand Technology 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 Firsthand Technology into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Metropolitan West Unconstrained and Firsthand Technology Opportunities, you can compare the effects of market volatilities on Metropolitan West and Firsthand Technology 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 Firsthand Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Metropolitan West and Firsthand Technology.

Diversification Opportunities for Metropolitan West and Firsthand Technology

-0.27

Correlation Coefficient

Metropolitan West  Firsthand Technology

Very good diversification

The 3 months correlation between Metropolitan and Firsthand is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Metropolitan West Unconstraine and Firsthand Technology Opportuni in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Firsthand Technology 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 Unconstrained are associated (or correlated) with Firsthand Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Firsthand Technology has no effect on the direction of Metropolitan West i.e., Metropolitan West and Firsthand Technology go up and down completely randomly.

Pair Corralation between Metropolitan West and Firsthand Technology

Assuming the 90 days horizon Metropolitan West is expected to generate 11.63 times less return on investment than Firsthand Technology. But when comparing it to its historical volatility, Metropolitan West Unconstrained is 10.42 times less risky than Firsthand Technology. It trades about 0.11 of its potential returns per unit of risk. Firsthand Technology Opportunities is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  390.00  in Firsthand Technology Opportunities on September 12, 2024 and sell it today you would earn a total of  16.00  from holding Firsthand Technology Opportunities or generate 4.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Metropolitan West Unconstraine  vs.  Firsthand Technology Opportuni

Metropolitan West

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Metropolitan West Unconstrained has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Metropolitan West is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Firsthand Technology

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Firsthand Technology Opportunities are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Firsthand Technology showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Metropolitan West and Firsthand Technology

The main advantage of trading using opposite Metropolitan West and Firsthand Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Metropolitan West position performs unexpectedly, Firsthand Technology 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 Firsthand Technology will offset losses from the drop in Firsthand Technology's long position.

The idea behind Metropolitan West Unconstrained and Firsthand Technology Opportunities pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.