Correlation Between Westwood Largecap and New Economy

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

Diversification Opportunities for Westwood Largecap and New Economy

0.53

Correlation Coefficient

Westwood Largecap  New Economy

Very weak diversification

The 3 months correlation between Westwood and New is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Westwood Largecap Value and New Economy Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Economy Fund 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 New Economy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Economy Fund has no effect on the direction of Westwood Largecap i.e., Westwood Largecap and New Economy go up and down completely randomly.

Pair Corralation between Westwood Largecap and New Economy

Assuming the 90 days horizon Westwood Largecap Value is expected to under-perform the New Economy. In addition to that, Westwood Largecap is 1.25 times more volatile than New Economy Fund. It trades about -0.06 of its total potential returns per unit of risk. New Economy Fund is currently generating about 0.14 per unit of volatility. If you would invest  6,392  in New Economy Fund on September 15, 2024 and sell it today you would earn a total of  454.00  from holding New Economy Fund or generate 7.1% return on investment over 90 days.

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

Westwood Largecap Value  vs.  New Economy Fund

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.

New Economy Fund

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in New Economy Fund are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical indicators, New Economy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Westwood Largecap and New Economy

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

The idea behind Westwood Largecap Value and New Economy Fund 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.