Correlation Between Westwood Largecap and Westwood Quality

Can any of the company-specific risk be diversified away by investing in both Westwood Largecap and Westwood Quality 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 Westwood Quality 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 Westwood Quality Smallcap, you can compare the effects of market volatilities on Westwood Largecap and Westwood Quality 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 Westwood Quality. Check out your portfolio center. Please also check ongoing floating volatility patterns of Westwood Largecap and Westwood Quality.

Diversification Opportunities for Westwood Largecap and Westwood Quality

0.92

Correlation Coefficient

Westwood Largecap  Westwood Quality

Almost no diversification

The 3 months correlation between Westwood and Westwood is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Westwood Largecap Value and Westwood Quality Smallcap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westwood Quality Smallcap 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 Westwood Quality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westwood Quality Smallcap has no effect on the direction of Westwood Largecap i.e., Westwood Largecap and Westwood Quality go up and down completely randomly.

Pair Corralation between Westwood Largecap and Westwood Quality

Assuming the 90 days horizon Westwood Largecap Value is expected to generate 0.84 times more return on investment than Westwood Quality. However, Westwood Largecap Value is 1.19 times less risky than Westwood Quality. It trades about -0.12 of its potential returns per unit of risk. Westwood Quality Smallcap is currently generating about -0.21 per unit of risk. If you would invest  1,524  in Westwood Largecap Value on December 1, 2024 and sell it today you would lose (113.00) from holding Westwood Largecap Value or give up 7.41% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.36%
Values	Daily Returns

Westwood Largecap Value  vs.  Westwood Quality Smallcap

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 latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Westwood Quality Smallcap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Westwood Quality Smallcap has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Westwood Largecap and Westwood Quality

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

The idea behind Westwood Largecap Value and Westwood Quality Smallcap 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..