Correlation Between Two Harbors and Westwood Holdings

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

By analyzing existing cross correlation between Two Harbors Investments and Westwood Holdings Group, you can compare the effects of market volatilities on Two Harbors and Westwood Holdings 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 Two Harbors with a short position of Westwood Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Two Harbors and Westwood Holdings.

Diversification Opportunities for Two Harbors and Westwood Holdings

0.69

Correlation Coefficient

Two Harbors  Westwood Holdings

Poor diversification

The 3 months correlation between Two and Westwood is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Two Harbors Investments and Westwood Holdings Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westwood Holdings and Two Harbors 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 Two Harbors Investments are associated (or correlated) with Westwood Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westwood Holdings has no effect on the direction of Two Harbors i.e., Two Harbors and Westwood Holdings go up and down completely randomly.

Pair Corralation between Two Harbors and Westwood Holdings

Considering the 90-day investment horizon Two Harbors is expected to generate 1.12 times less return on investment than Westwood Holdings. But when comparing it to its historical volatility, Two Harbors Investments is 1.61 times less risky than Westwood Holdings. It trades about 0.2 of its potential returns per unit of risk. Westwood Holdings Group is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  1,397  in Westwood Holdings Group on December 27, 2024 and sell it today you would earn a total of  288.00  from holding Westwood Holdings Group or generate 20.62% return on investment over 90 days.

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

Two Harbors Investments  vs.  Westwood Holdings Group

Two Harbors Investments

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Two Harbors Investments are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Two Harbors displayed solid returns over the last few months and may actually be approaching a breakup point.

Westwood Holdings

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Westwood Holdings Group are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain technical indicators, Westwood Holdings reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Two Harbors and Westwood Holdings

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

The idea behind Two Harbors Investments and Westwood Holdings Group 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.