Correlation Between Western Acquisition and Westwood Holdings

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

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

Diversification Opportunities for Western Acquisition and Westwood Holdings

0.77

Correlation Coefficient

Western Acquisition  Westwood Holdings

Poor diversification

The 3 months correlation between Western and Westwood is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Western Acquisition Ventures and Westwood Holdings Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westwood Holdings and Western Acquisition 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 Western Acquisition Ventures 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 Western Acquisition i.e., Western Acquisition and Westwood Holdings go up and down completely randomly.

Pair Corralation between Western Acquisition and Westwood Holdings

Given the investment horizon of 90 days Western Acquisition Ventures is expected to under-perform the Westwood Holdings. But the stock apears to be less risky and, when comparing its historical volatility, Western Acquisition Ventures is 1.31 times less risky than Westwood Holdings. The stock trades about -0.14 of its potential returns per unit of risk. The Westwood Holdings Group is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,549  in Westwood Holdings Group on August 31, 2024 and sell it today you would earn a total of  50.00  from holding Westwood Holdings Group or generate 3.23% return on investment over 90 days.

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

Western Acquisition Ventures  vs.  Westwood Holdings Group

Western Acquisition

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Western Acquisition Ventures are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Western Acquisition is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Westwood Holdings

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Westwood Holdings Group are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady technical indicators, Westwood Holdings reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Western Acquisition and Westwood Holdings

The main advantage of trading using opposite Western Acquisition and Westwood Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Acquisition 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 Western Acquisition Ventures 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.