Correlation Between Lord Abbett and Westwood Smidcap

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

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

Diversification Opportunities for Lord Abbett and Westwood Smidcap

0.19

Correlation Coefficient

Lord Abbett  Westwood Smidcap

Average diversification

The 3 months correlation between Lord and Westwood is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Lord Abbett Emerging and Westwood Smidcap Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westwood Smidcap and Lord Abbett 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 Lord Abbett Emerging are associated (or correlated) with Westwood Smidcap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westwood Smidcap has no effect on the direction of Lord Abbett i.e., Lord Abbett and Westwood Smidcap go up and down completely randomly.

Pair Corralation between Lord Abbett and Westwood Smidcap

Assuming the 90 days horizon Lord Abbett is expected to generate 6.16 times less return on investment than Westwood Smidcap. But when comparing it to its historical volatility, Lord Abbett Emerging is 4.13 times less risky than Westwood Smidcap. It trades about 0.17 of its potential returns per unit of risk. Westwood Smidcap Fund is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  1,613  in Westwood Smidcap Fund on September 5, 2024 and sell it today you would earn a total of  119.00  from holding Westwood Smidcap Fund or generate 7.38% return on investment over 90 days.

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

Lord Abbett Emerging  vs.  Westwood Smidcap Fund

Lord Abbett Emerging

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Lord Abbett Emerging are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Lord Abbett is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Westwood Smidcap

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Westwood Smidcap Fund are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak primary indicators, Westwood Smidcap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Lord Abbett and Westwood Smidcap

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

The idea behind Lord Abbett Emerging and Westwood Smidcap Fund 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.

Check out your portfolio center.

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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.