Can any of the company-specific risk be diversified away by investing in both Metropolitan West and John Hancock 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 John Hancock into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Metropolitan West Total and John Hancock Disciplined, you can compare the effects of market volatilities on Metropolitan West and John Hancock 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 John Hancock. Check out your portfolio center. Please also check ongoing floating volatility patterns of Metropolitan West and John Hancock.
Diversification Opportunities for Metropolitan West and John Hancock
The 3 months correlation between Metropolitan and John is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Metropolitan West Total and John Hancock Disciplined in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on John Hancock Disciplined 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 Total are associated (or correlated) with John Hancock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of John Hancock Disciplined has no effect on the direction of Metropolitan West i.e., Metropolitan West and John Hancock go up and down completely randomly.
Pair Corralation between Metropolitan West and John Hancock
Assuming the 90 days horizon Metropolitan West is expected to generate 9.02 times less return on investment than John Hancock. But when comparing it to its historical volatility, Metropolitan West Total is 1.81 times less risky than John Hancock. It trades about 0.01 of its potential returns per unit of risk. John Hancock Disciplined is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 2,082 in John Hancock Disciplined on March 6, 2024 and sell it today you would earn a total of 466.00 from holding John Hancock Disciplined or generate 22.38% return on investment over 90 days.
Over the last 90 days Metropolitan West Total 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.
Compared to the overall equity markets, risk-adjusted returns on investments in John Hancock Disciplined are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, John Hancock is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.