Correlation Between Global Gold and Westwood Quality

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

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

Diversification Opportunities for Global Gold and Westwood Quality

-0.68

Correlation Coefficient

Global Gold  Westwood Quality

Excellent diversification

The 3 months correlation between Global and Westwood is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Global Gold Fund 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 Global Gold 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 Global Gold Fund 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 Global Gold i.e., Global Gold and Westwood Quality go up and down completely randomly.

Pair Corralation between Global Gold and Westwood Quality

Assuming the 90 days horizon Global Gold Fund is expected to generate 2.66 times more return on investment than Westwood Quality. However, Global Gold is 2.66 times more volatile than Westwood Quality Value. It trades about 0.33 of its potential returns per unit of risk. Westwood Quality Value is currently generating about 0.25 per unit of risk. If you would invest  1,163  in Global Gold Fund on December 29, 2024 and sell it today you would earn a total of  425.00  from holding Global Gold Fund or generate 36.54% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	47.54%
Values	Daily Returns

Global Gold Fund  vs.  Westwood Quality Value

Global Gold Fund

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Global Gold Fund are ranked lower than 25 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Global Gold showed solid returns over the last few months and may actually be approaching a breakup point.

Westwood Quality Value

Risk-Adjusted Performance

Solid

Over the last 90 days Westwood Quality Value has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly weak fundamental indicators, Westwood Quality may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Global Gold and Westwood Quality

The main advantage of trading using opposite Global Gold and Westwood Quality positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Global Gold 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.

The idea behind Global Gold Fund and Westwood Quality Value 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.

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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.