Correlation Between Westwood Income and Westwood Short

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

Diversification Opportunities for Westwood Income and Westwood Short

0.96

Correlation Coefficient

Westwood Income  Westwood Short

Almost no diversification

The 3 months correlation between Westwood and Westwood is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Westwood Income Opportunity and Westwood Short Duration in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westwood Short Duration 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 Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westwood Short Duration has no effect on the direction of Westwood Income i.e., Westwood Income and Westwood Short go up and down completely randomly.

Pair Corralation between Westwood Income and Westwood Short

Assuming the 90 days horizon Westwood Income Opportunity is expected to generate 1.39 times more return on investment than Westwood Short. However, Westwood Income is 1.39 times more volatile than Westwood Short Duration. It trades about 0.2 of its potential returns per unit of risk. Westwood Short Duration is currently generating about 0.17 per unit of risk. If you would invest  1,186  in Westwood Income Opportunity on September 3, 2024 and sell it today you would earn a total of  55.00  from holding Westwood Income Opportunity or generate 4.64% return on investment over 90 days.

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

Westwood Income Opportunity  vs.  Westwood Short Duration

Westwood Income Oppo

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Westwood Income Opportunity are ranked lower than 15 (%) 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 Short Duration

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Westwood Short Duration are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Westwood Short 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 Income and Westwood Short

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

The idea behind Westwood Income Opportunity and Westwood Short Duration 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.