Correlation Between Large Cap and Old Westbury

Can any of the company-specific risk be diversified away by investing in both Large Cap and Old Westbury 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 Large Cap and Old Westbury into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Large Cap and Old Westbury

0.88

Correlation Coefficient

Large Cap  Old Westbury

Very poor diversification

The 3 months correlation between Large and Old is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Large Cap Value and Old Westbury Municipal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Old Westbury Municipal and Large Cap 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 Large Cap Value are associated (or correlated) with Old Westbury. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Old Westbury Municipal has no effect on the direction of Large Cap i.e., Large Cap and Old Westbury go up and down completely randomly.

Pair Corralation between Large Cap and Old Westbury

Assuming the 90 days horizon Large Cap Value is expected to generate 7.33 times more return on investment than Old Westbury. However, Large Cap is 7.33 times more volatile than Old Westbury Municipal. It trades about 0.14 of its potential returns per unit of risk. Old Westbury Municipal is currently generating about 0.33 per unit of risk. If you would invest  1,768  in Large Cap Value on May 27, 2025 and sell it today you would earn a total of  98.00  from holding Large Cap Value or generate 5.54% return on investment over 90 days.

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

Large Cap Value  vs.  Old Westbury Municipal

Large Cap Value

Risk-Adjusted Performance

Good

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

Old Westbury Municipal

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Old Westbury Municipal are ranked lower than 26 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental drivers, Old Westbury is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Large Cap and Old Westbury

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

The idea behind Large Cap Value and Old Westbury Municipal 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.