Correlation Between Westwood Market and Westwood Quality
Can any of the company-specific risk be diversified away by investing in both Westwood Market and Westwood Quality 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 Westwood Quality 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 Westwood Quality Smallcap, you can compare the effects of market volatilities on Westwood Market and Westwood Quality 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 Westwood Quality. Check out your portfolio center. Please also check ongoing floating volatility patterns of Westwood Market and Westwood Quality.
Diversification Opportunities for Westwood Market and Westwood Quality
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Westwood and Westwood is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Westwood Market Neutral and Westwood Quality Smallcap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westwood Quality Smallcap 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 Westwood Quality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westwood Quality Smallcap has no effect on the direction of Westwood Market i.e., Westwood Market and Westwood Quality go up and down completely randomly.
Pair Corralation between Westwood Market and Westwood Quality
Assuming the 90 days horizon Westwood Market Neutral is expected to generate 0.11 times more return on investment than Westwood Quality. However, Westwood Market Neutral is 9.38 times less risky than Westwood Quality. It trades about 0.29 of its potential returns per unit of risk. Westwood Quality Smallcap is currently generating about 0.01 per unit of risk. If you would invest 969.00 in Westwood Market Neutral on September 13, 2024 and sell it today you would earn a total of 5.00 from holding Westwood Market Neutral or generate 0.52% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Westwood Market Neutral vs. Westwood Quality Smallcap
Performance |
| Timeline |
| Westwood Market Neutral |
| Westwood Quality Smallcap |
Westwood Market and Westwood Quality Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Westwood Market and Westwood Quality
The main advantage of trading using opposite Westwood Market and Westwood Quality positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Westwood Market position performs unexpectedly, Westwood Quality 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 Quality will offset losses from the drop in Westwood Quality's long position.| Westwood Market vs. Westwood Short Duration | Westwood Market vs. Westwood Alternative Income | Westwood Market vs. Westwood High Income | Westwood Market vs. Westwood Income Opportunity |
| Westwood Quality vs. Westwood Short Duration | Westwood Quality vs. Westwood High Income | Westwood Quality vs. Westwood Income Opportunity | Westwood Quality vs. Westwood Income Opportunity |
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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
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