Correlation Between Moderately Aggressive and Westwood Market

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

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

Diversification Opportunities for Moderately Aggressive and Westwood Market

-0.27

Correlation Coefficient

Moderately Aggressive  Westwood Market

Very good diversification

The 3 months correlation between Moderately and Westwood is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Moderately Aggressive Balanced and Westwood Market Neutral in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westwood Market Neutral and Moderately Aggressive 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 Moderately Aggressive Balanced are associated (or correlated) with Westwood Market. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westwood Market Neutral has no effect on the direction of Moderately Aggressive i.e., Moderately Aggressive and Westwood Market go up and down completely randomly.

Pair Corralation between Moderately Aggressive and Westwood Market

Assuming the 90 days horizon Moderately Aggressive Balanced is expected to under-perform the Westwood Market. In addition to that, Moderately Aggressive is 8.06 times more volatile than Westwood Market Neutral. It trades about -0.05 of its total potential returns per unit of risk. Westwood Market Neutral is currently generating about 0.42 per unit of volatility. If you would invest  966.00  in Westwood Market Neutral on December 23, 2024 and sell it today you would earn a total of  21.00  from holding Westwood Market Neutral or generate 2.17% return on investment over 90 days.

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

Moderately Aggressive Balanced  vs.  Westwood Market Neutral

Moderately Aggressive

Risk-Adjusted Performance

Very Weak

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

Westwood Market Neutral

Risk-Adjusted Performance

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Westwood Market Neutral are ranked lower than 33 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Westwood Market is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Moderately Aggressive and Westwood Market

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

The idea behind Moderately Aggressive Balanced and Westwood Market Neutral 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.