Correlation Between Westwood High and Westwood Largecap
Can any of the company-specific risk be diversified away by investing in both Westwood High and Westwood Largecap 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 High and Westwood Largecap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Westwood High Income and Westwood Largecap Value, you can compare the effects of market volatilities on Westwood High and Westwood Largecap 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 High with a short position of Westwood Largecap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Westwood High and Westwood Largecap.
Diversification Opportunities for Westwood High and Westwood Largecap
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Westwood and Westwood is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Westwood High Income and Westwood Largecap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westwood Largecap Value and Westwood High 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 High Income are associated (or correlated) with Westwood Largecap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westwood Largecap Value has no effect on the direction of Westwood High i.e., Westwood High and Westwood Largecap go up and down completely randomly.
Pair Corralation between Westwood High and Westwood Largecap
Assuming the 90 days horizon Westwood High is expected to generate 1.31 times less return on investment than Westwood Largecap. But when comparing it to its historical volatility, Westwood High Income is 1.97 times less risky than Westwood Largecap. It trades about 0.11 of its potential returns per unit of risk. Westwood Largecap Value is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 1,247 in Westwood Largecap Value on August 31, 2024 and sell it today you would earn a total of 301.00 from holding Westwood Largecap Value or generate 24.14% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Westwood High Income vs. Westwood Largecap Value
Performance |
| Timeline |
| Westwood High Income |
| Westwood Largecap Value |
Westwood High and Westwood Largecap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Westwood High and Westwood Largecap
The main advantage of trading using opposite Westwood High and Westwood Largecap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Westwood High position performs unexpectedly, Westwood Largecap 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 Largecap will offset losses from the drop in Westwood Largecap's long position.| Westwood High vs. T Rowe Price | Westwood High vs. Old Westbury Large | Westwood High vs. Qs Large Cap | Westwood High vs. Federated Kaufmann Large |
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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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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