Correlation Between Westinghouse Air and HUMANA

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

Diversification Opportunities for Westinghouse Air and HUMANA

-0.36

Correlation Coefficient

Westinghouse Air  HUMANA

Very good diversification

The 3 months correlation between Westinghouse and HUMANA is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Westinghouse Air Brake and HUMANA INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HUMANA INC 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 HUMANA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HUMANA INC has no effect on the direction of Westinghouse Air i.e., Westinghouse Air and HUMANA go up and down completely randomly.

Pair Corralation between Westinghouse Air and HUMANA

Considering the 90-day investment horizon Westinghouse Air Brake is expected to generate 1.27 times more return on investment than HUMANA. However, Westinghouse Air is 1.27 times more volatile than HUMANA INC. It trades about 0.17 of its potential returns per unit of risk. HUMANA INC is currently generating about -0.19 per unit of risk. If you would invest  17,904  in Westinghouse Air Brake on September 20, 2024 and sell it today you would earn a total of  1,915  from holding Westinghouse Air Brake or generate 10.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Westinghouse Air Brake  vs.  HUMANA INC

Westinghouse Air Brake

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Westinghouse Air Brake are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Westinghouse Air may actually be approaching a critical reversion point that can send shares even higher in January 2025.

HUMANA INC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HUMANA INC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Bond's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for HUMANA INC investors.

Pair Trading with Westinghouse Air and HUMANA

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

The idea behind Westinghouse Air Brake and HUMANA INC 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.