Correlation Between Metropolitan West and Goldman Sachs

Can any of the company-specific risk be diversified away by investing in both Metropolitan West and Goldman Sachs 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 Goldman Sachs 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 Goldman Sachs Balanced, you can compare the effects of market volatilities on Metropolitan West and Goldman Sachs 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 Goldman Sachs. Check out your portfolio center. Please also check ongoing floating volatility patterns of Metropolitan West and Goldman Sachs.

Diversification Opportunities for Metropolitan West and Goldman Sachs

0.62

Correlation Coefficient

Metropolitan West  Goldman Sachs

Poor diversification

The 3 months correlation between Metropolitan and Goldman is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Metropolitan West High and Goldman Sachs Balanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Goldman Sachs Balanced 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 Goldman Sachs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Goldman Sachs Balanced has no effect on the direction of Metropolitan West i.e., Metropolitan West and Goldman Sachs go up and down completely randomly.

Pair Corralation between Metropolitan West and Goldman Sachs

Assuming the 90 days horizon Metropolitan West High is expected to under-perform the Goldman Sachs. But the mutual fund apears to be less risky and, when comparing its historical volatility, Metropolitan West High is 3.1 times less risky than Goldman Sachs. The mutual fund trades about -0.17 of its potential returns per unit of risk. The Goldman Sachs Balanced is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  1,252  in Goldman Sachs Balanced on September 29, 2024 and sell it today you would lose (17.00) from holding Goldman Sachs Balanced or give up 1.36% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Metropolitan West High  vs.  Goldman Sachs Balanced

Metropolitan West High

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Metropolitan West High 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.

Goldman Sachs Balanced

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Goldman Sachs Balanced has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Goldman Sachs 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 Goldman Sachs

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

The idea behind Metropolitan West High and Goldman Sachs Balanced 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.