Correlation Between Ab Global and Westwood Quality

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

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

Diversification Opportunities for Ab Global and Westwood Quality

0.31

Correlation Coefficient

Ab Global  Westwood Quality

Weak diversification

The 3 months correlation between CBSYX and Westwood is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Ab Global Risk 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 Ab Global 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 Ab Global Risk 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 Ab Global i.e., Ab Global and Westwood Quality go up and down completely randomly.

Pair Corralation between Ab Global and Westwood Quality

Assuming the 90 days horizon Ab Global is expected to generate 4.67 times less return on investment than Westwood Quality. But when comparing it to its historical volatility, Ab Global Risk is 3.31 times less risky than Westwood Quality. It trades about 0.06 of its potential returns per unit of risk. Westwood Quality Smallcap is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  2,168  in Westwood Quality Smallcap on September 13, 2024 and sell it today you would earn a total of  139.00  from holding Westwood Quality Smallcap or generate 6.41% return on investment over 90 days.

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

Ab Global Risk  vs.  Westwood Quality Smallcap

Ab Global Risk

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ab Global Risk are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Ab Global is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Westwood Quality Smallcap

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Westwood Quality Smallcap are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Westwood Quality may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Ab Global and Westwood Quality

The main advantage of trading using opposite Ab Global and Westwood Quality positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ab Global 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 Ab Global Risk and Westwood Quality Smallcap 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.