Correlation Between Westinghouse Air and Altair Engineering

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

Diversification Opportunities for Westinghouse Air and Altair Engineering

0.94

Correlation Coefficient

Westinghouse Air  Altair Engineering

Almost no diversification

The 3 months correlation between Westinghouse and Altair is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Westinghouse Air Brake and Altair Engineering in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Altair Engineering 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 Altair Engineering. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Altair Engineering has no effect on the direction of Westinghouse Air i.e., Westinghouse Air and Altair Engineering go up and down completely randomly.

Pair Corralation between Westinghouse Air and Altair Engineering

Assuming the 90 days horizon Westinghouse Air Brake is expected to generate 0.76 times more return on investment than Altair Engineering. However, Westinghouse Air Brake is 1.32 times less risky than Altair Engineering. It trades about 0.28 of its potential returns per unit of risk. Altair Engineering is currently generating about 0.21 per unit of risk. If you would invest  14,879  in Westinghouse Air Brake on September 3, 2024 and sell it today you would earn a total of  4,196  from holding Westinghouse Air Brake or generate 28.2% return on investment over 90 days.

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

Westinghouse Air Brake  vs.  Altair Engineering

Westinghouse Air Brake

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Westinghouse Air Brake are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Westinghouse Air reported solid returns over the last few months and may actually be approaching a breakup point.

Altair Engineering

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Altair Engineering are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Altair Engineering reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Westinghouse Air and Altair Engineering

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

The idea behind Westinghouse Air Brake and Altair Engineering 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..