Correlation Between Fisher Small and Westwood Largecap

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

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

Diversification Opportunities for Fisher Small and Westwood Largecap

0.7

Correlation Coefficient

Fisher Small  Westwood Largecap

Poor diversification

The 3 months correlation between Fisher and Westwood is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Fisher Small Cap and Westwood Largecap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westwood Largecap Value and Fisher Small 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 Fisher Small Cap are associated (or correlated) with Westwood Largecap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westwood Largecap Value has no effect on the direction of Fisher Small i.e., Fisher Small and Westwood Largecap go up and down completely randomly.

Pair Corralation between Fisher Small and Westwood Largecap

Assuming the 90 days horizon Fisher Small Cap is expected to under-perform the Westwood Largecap. In addition to that, Fisher Small is 1.74 times more volatile than Westwood Largecap Value. It trades about -0.42 of its total potential returns per unit of risk. Westwood Largecap Value is currently generating about -0.04 per unit of volatility. If you would invest  1,418  in Westwood Largecap Value on December 2, 2024 and sell it today you would lose (7.00) from holding Westwood Largecap Value or give up 0.49% of portfolio value over 90 days.

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

Fisher Small Cap  vs.  Westwood Largecap Value

Fisher Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Fisher Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's fundamental indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Westwood Largecap Value

Risk-Adjusted Performance

Very Weak

Over the last 90 days Westwood Largecap Value has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Fisher Small and Westwood Largecap

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

The idea behind Fisher Small Cap and Westwood Largecap 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.