Correlation Between Westwood Holdings and Ares Capital

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

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

Diversification Opportunities for Westwood Holdings and Ares Capital

0.19

Correlation Coefficient

Westwood Holdings  Ares Capital

Average diversification

The 3 months correlation between Westwood and Ares is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Westwood Holdings Group and Ares Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ares Capital and Westwood Holdings 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 Westwood Holdings Group are associated (or correlated) with Ares Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ares Capital has no effect on the direction of Westwood Holdings i.e., Westwood Holdings and Ares Capital go up and down completely randomly.

Pair Corralation between Westwood Holdings and Ares Capital

Considering the 90-day investment horizon Westwood Holdings is expected to generate 1.23 times less return on investment than Ares Capital. In addition to that, Westwood Holdings is 2.85 times more volatile than Ares Capital. It trades about 0.04 of its total potential returns per unit of risk. Ares Capital is currently generating about 0.13 per unit of volatility. If you would invest  2,167  in Ares Capital on November 29, 2024 and sell it today you would earn a total of  137.00  from holding Ares Capital or generate 6.32% return on investment over 90 days.

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

Westwood Holdings Group  vs.  Ares Capital

Westwood Holdings

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Westwood Holdings Group are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical indicators, Westwood Holdings is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Ares Capital

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ares Capital are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile fundamental indicators, Ares Capital may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with Westwood Holdings and Ares Capital

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

The idea behind Westwood Holdings Group and Ares Capital 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.