Correlation Between Westwood Largecap and The Value

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

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

Diversification Opportunities for Westwood Largecap and The Value

0.87

Correlation Coefficient

Westwood Largecap  The Value

Very poor diversification

The 3 months correlation between Westwood and The is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Westwood Largecap Value and The Value Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Value Fund and Westwood Largecap 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 Largecap Value are associated (or correlated) with The Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Value Fund has no effect on the direction of Westwood Largecap i.e., Westwood Largecap and The Value go up and down completely randomly.

Pair Corralation between Westwood Largecap and The Value

Assuming the 90 days horizon Westwood Largecap Value is expected to under-perform the The Value. But the mutual fund apears to be less risky and, when comparing its historical volatility, Westwood Largecap Value is 1.06 times less risky than The Value. The mutual fund trades about -0.01 of its potential returns per unit of risk. The The Value Fund is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  3,199  in The Value Fund on December 29, 2024 and sell it today you would lose (5.00) from holding The Value Fund or give up 0.16% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.39%
Values	Daily Returns

Westwood Largecap Value  vs.  The Value Fund

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.

Value Fund

Risk-Adjusted Performance

Very Weak

Over the last 90 days The Value Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong essential indicators, The Value 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 Largecap and The Value

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

The idea behind Westwood Largecap Value and The Value Fund 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.