Correlation Between Westinghouse Air and Federal Home

Can any of the company-specific risk be diversified away by investing in both Westinghouse Air and Federal Home 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 Federal Home 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 Federal Home 530, you can compare the effects of market volatilities on Westinghouse Air and Federal Home 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 Federal Home. Check out your portfolio center. Please also check ongoing floating volatility patterns of Westinghouse Air and Federal Home.

Diversification Opportunities for Westinghouse Air and Federal Home

0.73

Correlation Coefficient

Westinghouse Air  Federal Home

Poor diversification

The 3 months correlation between Westinghouse and Federal is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Westinghouse Air Brake and Federal Home 530 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Home 530 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 Federal Home. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federal Home 530 has no effect on the direction of Westinghouse Air i.e., Westinghouse Air and Federal Home go up and down completely randomly.

Pair Corralation between Westinghouse Air and Federal Home

Considering the 90-day investment horizon Westinghouse Air is expected to generate 6.19 times less return on investment than Federal Home. But when comparing it to its historical volatility, Westinghouse Air Brake is 10.84 times less risky than Federal Home. It trades about 0.32 of its potential returns per unit of risk. Federal Home 530 is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  595.00  in Federal Home 530 on September 5, 2024 and sell it today you would earn a total of  1,008  from holding Federal Home 530 or generate 169.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Westinghouse Air Brake  vs.  Federal Home 530

Westinghouse Air Brake

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Westinghouse Air Brake are ranked lower than 24 (%) 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.

Federal Home 530

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Federal Home 530 are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady forward-looking indicators, Federal Home reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Westinghouse Air and Federal Home

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

The idea behind Westinghouse Air Brake and Federal Home 530 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.