Correlation Between Royce Global and Metropolitan West

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

By analyzing existing cross correlation between Royce Global Financial and Metropolitan West Investment, you can compare the effects of market volatilities on Royce Global 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 Royce Global with a short position of Metropolitan West. Check out your portfolio center. Please also check ongoing floating volatility patterns of Royce Global and Metropolitan West.

Diversification Opportunities for Royce Global and Metropolitan West

-0.3

Correlation Coefficient

Royce Global  Metropolitan West

Very good diversification

The 3 months correlation between Royce and Metropolitan is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Royce Global Financial and Metropolitan West Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metropolitan West and Royce Global 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 Royce Global Financial 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 has no effect on the direction of Royce Global i.e., Royce Global and Metropolitan West go up and down completely randomly.

Pair Corralation between Royce Global and Metropolitan West

Assuming the 90 days horizon Royce Global Financial is expected to under-perform the Metropolitan West. In addition to that, Royce Global is 6.7 times more volatile than Metropolitan West Investment. It trades about -0.13 of its total potential returns per unit of risk. Metropolitan West Investment is currently generating about -0.02 per unit of volatility. If you would invest  777.00  in Metropolitan West Investment on August 15, 2024 and sell it today you would lose (2.00) from holding Metropolitan West Investment or give up 0.26% of portfolio value over 90 days.

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

Royce Global Financial  vs.  Metropolitan West Investment

Royce Global Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Royce Global Financial has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's forward indicators remain fairly strong which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long term up-swing for the fund investors.

Metropolitan West

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Metropolitan West Investment 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.

Pair Trading with Royce Global and Metropolitan West

The main advantage of trading using opposite Royce Global and Metropolitan West positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Royce Global 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.

The idea behind Royce Global Financial and Metropolitan West Investment 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.