Correlation Between Balanced Fund and Westwood Income

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

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

Diversification Opportunities for Balanced Fund and Westwood Income

0.84

Correlation Coefficient

Balanced Fund  Westwood Income

Very poor diversification

The 3 months correlation between Balanced and Westwood is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Balanced Fund Retail and Westwood Income Opportunity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westwood Income Oppo and Balanced Fund 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 Balanced Fund Retail are associated (or correlated) with Westwood Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westwood Income Oppo has no effect on the direction of Balanced Fund i.e., Balanced Fund and Westwood Income go up and down completely randomly.

Pair Corralation between Balanced Fund and Westwood Income

Assuming the 90 days horizon Balanced Fund is expected to generate 1.18 times less return on investment than Westwood Income. In addition to that, Balanced Fund is 1.45 times more volatile than Westwood Income Opportunity. It trades about 0.11 of its total potential returns per unit of risk. Westwood Income Opportunity is currently generating about 0.19 per unit of volatility. If you would invest  1,191  in Westwood Income Opportunity on September 5, 2024 and sell it today you would earn a total of  53.00  from holding Westwood Income Opportunity or generate 4.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

Balanced Fund Retail  vs.  Westwood Income Opportunity

Balanced Fund Retail

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Balanced Fund Retail are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Balanced Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Westwood Income Oppo

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Westwood Income Opportunity are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Westwood Income is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Balanced Fund and Westwood Income

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

The idea behind Balanced Fund Retail and Westwood Income Opportunity 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.