Correlation Between Westinghouse Air and Pearson PLC

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

Diversification Opportunities for Westinghouse Air and Pearson PLC

0.81

Correlation Coefficient

Westinghouse Air  Pearson PLC

Very poor diversification

The 3 months correlation between Westinghouse and Pearson is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Westinghouse Air Brake and Pearson PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pearson PLC ADR 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 Pearson PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pearson PLC ADR has no effect on the direction of Westinghouse Air i.e., Westinghouse Air and Pearson PLC go up and down completely randomly.

Pair Corralation between Westinghouse Air and Pearson PLC

Considering the 90-day investment horizon Westinghouse Air is expected to generate 1.26 times less return on investment than Pearson PLC. In addition to that, Westinghouse Air is 1.29 times more volatile than Pearson PLC ADR. It trades about 0.13 of its total potential returns per unit of risk. Pearson PLC ADR is currently generating about 0.22 per unit of volatility. If you would invest  1,230  in Pearson PLC ADR on September 29, 2024 and sell it today you would earn a total of  391.00  from holding Pearson PLC ADR or generate 31.79% return on investment over 90 days.

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

Westinghouse Air Brake  vs.  Pearson PLC ADR

Westinghouse Air Brake

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Westinghouse Air Brake are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Westinghouse Air is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pearson PLC ADR

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pearson PLC ADR are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent basic indicators, Pearson PLC displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Westinghouse Air and Pearson PLC

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

The idea behind Westinghouse Air Brake and Pearson PLC ADR 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.

Check out your portfolio center.

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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.