Correlation Between Westinghouse Air and Cadence Design

Can any of the company-specific risk be diversified away by investing in both Westinghouse Air and Cadence Design 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 Westinghouse Air and Cadence Design into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Westinghouse Air Brake and Cadence Design Systems, you can compare the effects of market volatilities on Westinghouse Air and Cadence Design 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 Westinghouse Air with a short position of Cadence Design. Check out your portfolio center. Please also check ongoing floating volatility patterns of Westinghouse Air and Cadence Design.

Diversification Opportunities for Westinghouse Air and Cadence Design

0.76

Correlation Coefficient

Westinghouse Air  Cadence Design

Poor diversification

The 3 months correlation between Westinghouse and Cadence is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Westinghouse Air Brake and Cadence Design Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cadence Design Systems and Westinghouse Air 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 Westinghouse Air Brake are associated (or correlated) with Cadence Design. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cadence Design Systems has no effect on the direction of Westinghouse Air i.e., Westinghouse Air and Cadence Design go up and down completely randomly.

Pair Corralation between Westinghouse Air and Cadence Design

Considering the 90-day investment horizon Westinghouse Air is expected to generate 1.09 times less return on investment than Cadence Design. But when comparing it to its historical volatility, Westinghouse Air Brake is 2.57 times less risky than Cadence Design. It trades about 0.25 of its potential returns per unit of risk. Cadence Design Systems is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  26,969  in Cadence Design Systems on September 18, 2024 and sell it today you would earn a total of  4,380  from holding Cadence Design Systems or generate 16.24% return on investment over 90 days.

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

Westinghouse Air Brake  vs.  Cadence Design Systems

Westinghouse Air Brake

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Westinghouse Air Brake are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Westinghouse Air sustained solid returns over the last few months and may actually be approaching a breakup point.

Cadence Design Systems

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cadence Design Systems are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Cadence Design unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Westinghouse Air and Cadence Design

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

The idea behind Westinghouse Air Brake and Cadence Design Systems 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..