Correlation Between American Beacon and Westwood Salient

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

By analyzing existing cross correlation between American Beacon Select and Westwood Salient Enhanced, you can compare the effects of market volatilities on American Beacon and Westwood Salient 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 American Beacon with a short position of Westwood Salient. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Beacon and Westwood Salient.

Diversification Opportunities for American Beacon and Westwood Salient

0.67

Correlation Coefficient

American Beacon  Westwood Salient

Poor diversification

The 3 months correlation between American and Westwood is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding American Beacon Select and Westwood Salient Enhanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westwood Salient Enhanced and American Beacon 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 American Beacon Select are associated (or correlated) with Westwood Salient. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westwood Salient Enhanced has no effect on the direction of American Beacon i.e., American Beacon and Westwood Salient go up and down completely randomly.

Pair Corralation between American Beacon and Westwood Salient

Given the investment horizon of 90 days American Beacon Select is expected to generate 1.27 times more return on investment than Westwood Salient. However, American Beacon is 1.27 times more volatile than Westwood Salient Enhanced. It trades about 0.18 of its potential returns per unit of risk. Westwood Salient Enhanced is currently generating about 0.11 per unit of risk. If you would invest  2,811  in American Beacon Select on September 12, 2024 and sell it today you would earn a total of  368.00  from holding American Beacon Select or generate 13.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

American Beacon Select  vs.  Westwood Salient Enhanced

American Beacon Select

Risk-Adjusted Performance

13 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in American Beacon Select are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, American Beacon reported solid returns over the last few months and may actually be approaching a breakup point.

Westwood Salient Enhanced

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Westwood Salient Enhanced are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain technical and fundamental indicators, Westwood Salient may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with American Beacon and Westwood Salient

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

The idea behind American Beacon Select and Westwood Salient Enhanced 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.