Correlation Between Westwood Market and Inverse Government
Can any of the company-specific risk be diversified away by investing in both Westwood Market and Inverse Government 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 Market and Inverse Government into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Westwood Market Neutral and Inverse Government Long, you can compare the effects of market volatilities on Westwood Market and Inverse Government 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 Market with a short position of Inverse Government. Check out your portfolio center. Please also check ongoing floating volatility patterns of Westwood Market and Inverse Government.
Diversification Opportunities for Westwood Market and Inverse Government
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Westwood and Inverse is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Westwood Market Neutral and Inverse Government Long in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inverse Government Long and Westwood Market 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 Market Neutral are associated (or correlated) with Inverse Government. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inverse Government Long has no effect on the direction of Westwood Market i.e., Westwood Market and Inverse Government go up and down completely randomly.
Pair Corralation between Westwood Market and Inverse Government
Assuming the 90 days horizon Westwood Market Neutral is expected to generate 0.1 times more return on investment than Inverse Government. However, Westwood Market Neutral is 10.08 times less risky than Inverse Government. It trades about 0.4 of its potential returns per unit of risk. Inverse Government Long is currently generating about 0.02 per unit of risk. If you would invest 931.00 in Westwood Market Neutral on September 3, 2024 and sell it today you would earn a total of 42.00 from holding Westwood Market Neutral or generate 4.51% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Westwood Market Neutral vs. Inverse Government Long
Performance |
| Timeline |
| Westwood Market Neutral |
| Inverse Government Long |
Westwood Market and Inverse Government Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Westwood Market and Inverse Government
The main advantage of trading using opposite Westwood Market and Inverse Government positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Westwood Market position performs unexpectedly, Inverse Government 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 Inverse Government will offset losses from the drop in Inverse Government's long position.| Westwood Market vs. Columbia Real Estate | Westwood Market vs. Dunham Real Estate | Westwood Market vs. Forum Real Estate | Westwood Market vs. Commonwealth Real Estate |
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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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.
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