Correlation Between Air Products and Westinghouse Air

Can any of the company-specific risk be diversified away by investing in both Air Products and Westinghouse Air 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 Air Products and Westinghouse Air into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Air Products and and Westinghouse Air Brake, you can compare the effects of market volatilities on Air Products and Westinghouse Air 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 Air Products with a short position of Westinghouse Air. Check out your portfolio center. Please also check ongoing floating volatility patterns of Air Products and Westinghouse Air.

Diversification Opportunities for Air Products and Westinghouse Air

0.29

Correlation Coefficient

Air Products  Westinghouse Air

Modest diversification

The 3 months correlation between Air and Westinghouse is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Air Products and and Westinghouse Air Brake in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westinghouse Air Brake and Air Products 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 Air Products and are associated (or correlated) with Westinghouse Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westinghouse Air Brake has no effect on the direction of Air Products i.e., Air Products and Westinghouse Air go up and down completely randomly.

Pair Corralation between Air Products and Westinghouse Air

Assuming the 90 days trading horizon Air Products and is expected to generate 0.28 times more return on investment than Westinghouse Air. However, Air Products and is 3.59 times less risky than Westinghouse Air. It trades about 0.06 of its potential returns per unit of risk. Westinghouse Air Brake is currently generating about -0.09 per unit of risk. If you would invest  44,670  in Air Products and on December 26, 2024 and sell it today you would earn a total of  722.00  from holding Air Products and or generate 1.62% return on investment over 90 days.

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

Air Products and  vs.  Westinghouse Air Brake

Air Products

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Air Products and are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Air Products is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Westinghouse Air Brake

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Air Products and Westinghouse Air

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

The idea behind Air Products and and Westinghouse Air Brake 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.