Correlation Between Westwood Income and Westwood Quality

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

Diversification Opportunities for Westwood Income and Westwood Quality

0.91

Correlation Coefficient

Westwood Income  Westwood Quality

Almost no diversification

The 3 months correlation between Westwood and Westwood is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Westwood Income Opportunity 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 Income 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 Income Opportunity 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 Income i.e., Westwood Income and Westwood Quality go up and down completely randomly.

Pair Corralation between Westwood Income and Westwood Quality

Assuming the 90 days horizon Westwood Income is expected to generate 2.15 times less return on investment than Westwood Quality. But when comparing it to its historical volatility, Westwood Income Opportunity is 3.34 times less risky than Westwood Quality. It trades about 0.16 of its potential returns per unit of risk. Westwood Quality Smallcap is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,963  in Westwood Quality Smallcap on September 12, 2024 and sell it today you would earn a total of  323.00  from holding Westwood Quality Smallcap or generate 16.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	99.2%
Values	Daily Returns

Westwood Income Opportunity  vs.  Westwood Quality Smallcap

Westwood Income Oppo

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Westwood Income Opportunity are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Westwood Income is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Westwood Quality Smallcap

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Westwood Quality Smallcap are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Westwood Quality may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Westwood Income and Westwood Quality

The main advantage of trading using opposite Westwood Income and Westwood Quality positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Westwood Income 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 Income Opportunity 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.