Correlation Between M Large and Westwood Smidcap

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

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

Diversification Opportunities for M Large and Westwood Smidcap

0.67

Correlation Coefficient

M Large  Westwood Smidcap

Poor diversification

The 3 months correlation between MTCGX and Westwood is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding M Large Cap and Westwood Smidcap Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westwood Smidcap and M Large 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 M Large Cap 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 M Large i.e., M Large and Westwood Smidcap go up and down completely randomly.

Pair Corralation between M Large and Westwood Smidcap

Assuming the 90 days horizon M Large Cap is expected to under-perform the Westwood Smidcap. In addition to that, M Large is 2.07 times more volatile than Westwood Smidcap Fund. It trades about -0.13 of its total potential returns per unit of risk. Westwood Smidcap Fund is currently generating about -0.05 per unit of volatility. If you would invest  1,583  in Westwood Smidcap Fund on December 21, 2024 and sell it today you would lose (51.00) from holding Westwood Smidcap Fund or give up 3.22% of portfolio value over 90 days.

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

M Large Cap  vs.  Westwood Smidcap Fund

M Large Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days M Large 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 technical and 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 Smidcap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Westwood Smidcap Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong primary indicators, Westwood Smidcap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with M Large and Westwood Smidcap

The main advantage of trading using opposite M Large and Westwood Smidcap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if M Large 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 M Large Cap 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..