Correlation Between Westwood Income and Westwood Quality
Can any of the company-specific risk be diversified away by investing in both Westwood Income 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 Income 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 Income Opportunity and Westwood Quality Value, you can compare the effects of market volatilities on Westwood Income 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 Income with a short position of Westwood Quality. Check out your portfolio center. Please also check ongoing floating volatility patterns of Westwood Income and Westwood Quality.
Diversification Opportunities for Westwood Income and Westwood Quality
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Westwood and Westwood is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Westwood Income Opportunity and Westwood Quality Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westwood Quality Value and Westwood Income 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 Income Opportunity 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 Value has no effect on the direction of Westwood Income i.e., Westwood Income and Westwood Quality go up and down completely randomly.
Pair Corralation between Westwood Income and Westwood Quality
Assuming the 90 days horizon Westwood Income is expected to generate 1.42 times less return on investment than Westwood Quality. But when comparing it to its historical volatility, Westwood Income Opportunity is 1.92 times less risky than Westwood Quality. It trades about 0.17 of its potential returns per unit of risk. Westwood Quality Value is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 1,427 in Westwood Quality Value on August 28, 2024 and sell it today you would earn a total of 79.00 from holding Westwood Quality Value or generate 5.54% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Westwood Income Opportunity vs. Westwood Quality Value
Performance |
| Timeline |
| Westwood Income Oppo |
| Westwood Quality Value |
Westwood Income and Westwood Quality Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Westwood Income and Westwood Quality
The main advantage of trading using opposite Westwood Income and Westwood Quality positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Westwood Income 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 Income vs. Berwyn Income Fund | Westwood Income vs. Fpa Crescent Fund | Westwood Income vs. James Balanced Golden | Westwood Income vs. Westwood Largecap Value |
| Westwood Quality vs. Westwood Short Duration | Westwood Quality vs. Westwood Alternative Income | Westwood Quality vs. Westwood High Income | 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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