Correlation Between Westinghouse Air and Old Republic

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

Diversification Opportunities for Westinghouse Air and Old Republic

0.77

Correlation Coefficient

Westinghouse Air  Old Republic

Poor diversification

The 3 months correlation between Westinghouse and Old is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Westinghouse Air Brake and Old Republic International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Old Republic Interna 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 Old Republic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Old Republic Interna has no effect on the direction of Westinghouse Air i.e., Westinghouse Air and Old Republic go up and down completely randomly.

Pair Corralation between Westinghouse Air and Old Republic

Considering the 90-day investment horizon Westinghouse Air Brake is expected to generate 0.85 times more return on investment than Old Republic. However, Westinghouse Air Brake is 1.17 times less risky than Old Republic. It trades about 0.31 of its potential returns per unit of risk. Old Republic International is currently generating about 0.08 per unit of risk. If you would invest  16,756  in Westinghouse Air Brake on September 12, 2024 and sell it today you would earn a total of  3,629  from holding Westinghouse Air Brake or generate 21.66% 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.  Old Republic International

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.

Old Republic Interna

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Old Republic International are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent basic indicators, Old Republic may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Westinghouse Air and Old Republic

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

The idea behind Westinghouse Air Brake and Old Republic International 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .