Correlation Between Metropolitan West and Vanguard Small

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

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

Diversification Opportunities for Metropolitan West and Vanguard Small

-0.18

Correlation Coefficient

Metropolitan West  Vanguard Small

Good diversification

The 3 months correlation between Metropolitan and Vanguard is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Metropolitan West Ultra and Vanguard Small Cap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard 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 Ultra are associated (or correlated) with Vanguard Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Small Cap has no effect on the direction of Metropolitan West i.e., Metropolitan West and Vanguard Small go up and down completely randomly.

Pair Corralation between Metropolitan West and Vanguard Small

Assuming the 90 days horizon Metropolitan West is expected to generate 33.9 times less return on investment than Vanguard Small. But when comparing it to its historical volatility, Metropolitan West Ultra is 6.14 times less risky than Vanguard Small. It trades about 0.03 of its potential returns per unit of risk. Vanguard Small Cap Value is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  4,668  in Vanguard Small Cap Value on September 13, 2024 and sell it today you would earn a total of  402.00  from holding Vanguard Small Cap Value or generate 8.61% return on investment over 90 days.

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

Metropolitan West Ultra  vs.  Vanguard Small Cap Value

Metropolitan West Ultra

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Metropolitan West Ultra are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. 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.

Vanguard Small Cap

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Small Cap Value are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Metropolitan West and Vanguard Small

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

The idea behind Metropolitan West Ultra and Vanguard Small Cap Value 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.