Correlation Between Westwood Largecap and Westwood Income

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

By analyzing existing cross correlation between Westwood Largecap Value and Westwood Income Opportunity, you can compare the effects of market volatilities on Westwood Largecap and Westwood Income 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 Westwood Largecap with a short position of Westwood Income. Check out your portfolio center. Please also check ongoing floating volatility patterns of Westwood Largecap and Westwood Income.

Diversification Opportunities for Westwood Largecap and Westwood Income

0.91

Correlation Coefficient

Westwood Largecap  Westwood Income

Almost no diversification

The 3 months correlation between Westwood and Westwood is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Westwood Largecap Value and Westwood Income Opportunity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westwood Income Oppo and Westwood Largecap 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 Westwood Largecap Value are associated (or correlated) with Westwood Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westwood Income Oppo has no effect on the direction of Westwood Largecap i.e., Westwood Largecap and Westwood Income go up and down completely randomly.

Pair Corralation between Westwood Largecap and Westwood Income

Assuming the 90 days horizon Westwood Largecap Value is expected to generate 2.18 times more return on investment than Westwood Income. However, Westwood Largecap is 2.18 times more volatile than Westwood Income Opportunity. It trades about 0.13 of its potential returns per unit of risk. Westwood Income Opportunity is currently generating about 0.11 per unit of risk. If you would invest  1,485  in Westwood Largecap Value on August 12, 2024 and sell it today you would earn a total of  35.00  from holding Westwood Largecap Value or generate 2.36% return on investment over 90 days.

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

Westwood Largecap Value  vs.  Westwood Income Opportunity

Westwood Largecap Value

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Westwood Largecap Value are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak essential indicators, Westwood Largecap may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Westwood Income Oppo

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Westwood Income Opportunity are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Westwood Income is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Westwood Largecap and Westwood Income

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

The idea behind Westwood Largecap Value and Westwood Income Opportunity 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.