Correlation Between Westwood Alternative and Westwood Largecap

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

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

Diversification Opportunities for Westwood Alternative and Westwood Largecap

-0.32

Correlation Coefficient

Westwood Alternative  Westwood Largecap

Very good diversification

The 3 months correlation between Westwood and Westwood is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Westwood Alternative Income and Westwood Largecap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westwood Largecap Value and Westwood Alternative 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 Alternative Income are associated (or correlated) with Westwood Largecap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westwood Largecap Value has no effect on the direction of Westwood Alternative i.e., Westwood Alternative and Westwood Largecap go up and down completely randomly.

Pair Corralation between Westwood Alternative and Westwood Largecap

Assuming the 90 days horizon Westwood Alternative Income is expected to generate 0.12 times more return on investment than Westwood Largecap. However, Westwood Alternative Income is 8.1 times less risky than Westwood Largecap. It trades about 0.38 of its potential returns per unit of risk. Westwood Largecap Value is currently generating about -0.01 per unit of risk. If you would invest  966.00  in Westwood Alternative Income on December 30, 2024 and sell it today you would earn a total of  10.00  from holding Westwood Alternative Income or generate 1.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	46.77%
Values	Daily Returns

Westwood Alternative Income  vs.  Westwood Largecap Value

Westwood Alternative

Risk-Adjusted Performance

Strong

Over the last 90 days Westwood Alternative Income has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Westwood Alternative is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Westwood Largecap Value

Risk-Adjusted Performance

Very Weak

Over the last 90 days Westwood Largecap Value has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Westwood Largecap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Westwood Alternative and Westwood Largecap

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

The idea behind Westwood Alternative Income and Westwood Largecap 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.