Correlation Between Davidson Multi and Westwood Largecap

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

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

Diversification Opportunities for Davidson Multi and Westwood Largecap

0.71

Correlation Coefficient

Davidson Multi  Westwood Largecap

Poor diversification

The 3 months correlation between Davidson and Westwood is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Davidson Multi Cap Equity 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 Davidson Multi 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 Davidson Multi Cap Equity 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 Davidson Multi i.e., Davidson Multi and Westwood Largecap go up and down completely randomly.

Pair Corralation between Davidson Multi and Westwood Largecap

Assuming the 90 days horizon Davidson Multi Cap Equity is expected to generate 0.67 times more return on investment than Westwood Largecap. However, Davidson Multi Cap Equity is 1.49 times less risky than Westwood Largecap. It trades about 0.14 of its potential returns per unit of risk. Westwood Largecap Value is currently generating about -0.05 per unit of risk. If you would invest  3,331  in Davidson Multi Cap Equity on September 16, 2024 and sell it today you would earn a total of  197.00  from holding Davidson Multi Cap Equity or generate 5.91% return on investment over 90 days.

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

Davidson Multi Cap Equity  vs.  Westwood Largecap Value

Davidson Multi Cap

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Davidson Multi Cap Equity are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Davidson Multi 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

0 of 100

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 Davidson Multi and Westwood Largecap

The main advantage of trading using opposite Davidson Multi and Westwood Largecap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Davidson Multi 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 Davidson Multi Cap Equity 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.