Correlation Between Western Investment and Highwood Asset

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

By analyzing existing cross correlation between Western Investment and Highwood Asset Management, you can compare the effects of market volatilities on Western Investment and Highwood Asset 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 Investment with a short position of Highwood Asset. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Investment and Highwood Asset.

Diversification Opportunities for Western Investment and Highwood Asset

-0.24

Correlation Coefficient

Western Investment  Highwood Asset

Very good diversification

The 3 months correlation between Western and Highwood is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Western Investment and Highwood Asset Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Highwood Asset Management and Western Investment 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 Investment are associated (or correlated) with Highwood Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Highwood Asset Management has no effect on the direction of Western Investment i.e., Western Investment and Highwood Asset go up and down completely randomly.

Pair Corralation between Western Investment and Highwood Asset

Given the investment horizon of 90 days Western Investment is expected to under-perform the Highwood Asset. In addition to that, Western Investment is 1.26 times more volatile than Highwood Asset Management. It trades about -0.01 of its total potential returns per unit of risk. Highwood Asset Management is currently generating about 0.04 per unit of volatility. If you would invest  600.00  in Highwood Asset Management on December 30, 2024 and sell it today you would earn a total of  25.00  from holding Highwood Asset Management or generate 4.17% return on investment over 90 days.

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

Western Investment  vs.  Highwood Asset Management

Western Investment

Risk-Adjusted Performance

Very Weak

Over the last 90 days Western Investment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Western Investment is not utilizing all of its potentials. The newest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Highwood Asset Management

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Highwood Asset Management are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Highwood Asset is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Western Investment and Highwood Asset

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

The idea behind Western Investment and Highwood Asset Management 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.