Correlation Between World Energy and Westwood Alternative

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

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

Diversification Opportunities for World Energy and Westwood Alternative

0.85

Correlation Coefficient

World Energy  Westwood Alternative

Very poor diversification

The 3 months correlation between World and Westwood is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding World Energy Fund and Westwood Alternative Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westwood Alternative and World Energy 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 World Energy Fund are associated (or correlated) with Westwood Alternative. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westwood Alternative has no effect on the direction of World Energy i.e., World Energy and Westwood Alternative go up and down completely randomly.

Pair Corralation between World Energy and Westwood Alternative

Assuming the 90 days horizon World Energy Fund is expected to generate 13.75 times more return on investment than Westwood Alternative. However, World Energy is 13.75 times more volatile than Westwood Alternative Income. It trades about 0.19 of its potential returns per unit of risk. Westwood Alternative Income is currently generating about 0.3 per unit of risk. If you would invest  1,291  in World Energy Fund on September 12, 2024 and sell it today you would earn a total of  178.00  from holding World Energy Fund or generate 13.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

World Energy Fund  vs.  Westwood Alternative Income

World Energy

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in World Energy Fund are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, World Energy showed solid returns over the last few months and may actually be approaching a breakup point.

Westwood Alternative

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Westwood Alternative Income are ranked lower than 23 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Westwood Alternative is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with World Energy and Westwood Alternative

The main advantage of trading using opposite World Energy and Westwood Alternative positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if World Energy position performs unexpectedly, Westwood Alternative 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 Alternative will offset losses from the drop in Westwood Alternative's long position.

The idea behind World Energy Fund and Westwood Alternative Income 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.