Correlation Between Vanguard Value and Westwood Quality

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

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

Diversification Opportunities for Vanguard Value and Westwood Quality

-0.42

Correlation Coefficient

Vanguard Value  Westwood Quality

Very good diversification

The 3 months correlation between Vanguard and Westwood is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Value Index 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 Vanguard Value 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 Vanguard Value Index 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 Vanguard Value i.e., Vanguard Value and Westwood Quality go up and down completely randomly.

Pair Corralation between Vanguard Value and Westwood Quality

Assuming the 90 days horizon Vanguard Value is expected to generate 6.84 times less return on investment than Westwood Quality. In addition to that, Vanguard Value is 1.28 times more volatile than Westwood Quality Value. It trades about 0.03 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 30, 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 Against
Strength	Very Weak
Accuracy	46.77%
Values	Daily Returns

Vanguard Value Index  vs.  Westwood Quality Value

Vanguard Value Index

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Value Index are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Vanguard Value 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 Vanguard Value and Westwood Quality

The main advantage of trading using opposite Vanguard Value and Westwood Quality positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Value 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 Vanguard Value Index 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.