Correlation Between Metropolitan West and Cardinal Small

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

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

Diversification Opportunities for Metropolitan West and Cardinal Small

-0.55

Correlation Coefficient

Metropolitan West  Cardinal Small

Excellent diversification

The 3 months correlation between Metropolitan and Cardinal is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Metropolitan West Porate and Cardinal Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cardinal Small Cap 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 Porate are associated (or correlated) with Cardinal Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cardinal Small Cap has no effect on the direction of Metropolitan West i.e., Metropolitan West and Cardinal Small go up and down completely randomly.

Pair Corralation between Metropolitan West and Cardinal Small

Assuming the 90 days horizon Metropolitan West is expected to generate 1.6 times less return on investment than Cardinal Small. But when comparing it to its historical volatility, Metropolitan West Porate is 2.39 times less risky than Cardinal Small. It trades about 0.05 of its potential returns per unit of risk. Cardinal Small Cap is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,245  in Cardinal Small Cap on September 26, 2024 and sell it today you would earn a total of  199.00  from holding Cardinal Small Cap or generate 15.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Metropolitan West Porate  vs.  Cardinal Small Cap

Metropolitan West Porate

Risk-Adjusted Performance

0 of 100

Very Weak

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

Cardinal Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Metropolitan West and Cardinal Small

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

The idea behind Metropolitan West Porate and Cardinal Small Cap 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.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.