Correlation Between Liberty All and Westwood Quality

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

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

Diversification Opportunities for Liberty All and Westwood Quality

0.14

Correlation Coefficient

Liberty All  Westwood Quality

Average diversification

The 3 months correlation between Liberty and Westwood is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Liberty All Star and Westwood Quality Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westwood Quality Value and Liberty All 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 Liberty All Star are associated (or correlated) with Westwood Quality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westwood Quality Value has no effect on the direction of Liberty All i.e., Liberty All and Westwood Quality go up and down completely randomly.

Pair Corralation between Liberty All and Westwood Quality

Considering the 90-day investment horizon Liberty All Star is expected to under-perform the Westwood Quality. In addition to that, Liberty All is 1.56 times more volatile than Westwood Quality Value. It trades about -0.07 of its total potential returns per unit of risk. Westwood Quality Value is currently generating about 0.25 per unit of volatility. If you would invest  1,323  in Westwood Quality Value on December 29, 2024 and sell it today you would earn a total of  58.00  from holding Westwood Quality Value or generate 4.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	47.54%
Values	Daily Returns

Liberty All Star  vs.  Westwood Quality Value

Liberty All Star

Risk-Adjusted Performance

Very Weak

Over the last 90 days Liberty All Star has generated negative risk-adjusted returns adding no value to fund investors. Despite somewhat strong basic indicators, Liberty All is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Westwood Quality Value

Risk-Adjusted Performance

Solid

Over the last 90 days Westwood Quality Value has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly weak fundamental indicators, Westwood Quality may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Liberty All and Westwood Quality

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

The idea behind Liberty All Star and Westwood Quality 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.