Correlation Between Air Transport and Westinghouse Air

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

Diversification Opportunities for Air Transport and Westinghouse Air

0.32

Correlation Coefficient

Air Transport  Westinghouse Air

Weak diversification

The 3 months correlation between Air and Westinghouse is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Air Transport Services 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 Transport 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 Transport Services 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 Transport i.e., Air Transport and Westinghouse Air go up and down completely randomly.

Pair Corralation between Air Transport and Westinghouse Air

Assuming the 90 days horizon Air Transport is expected to generate 3.17 times less return on investment than Westinghouse Air. But when comparing it to its historical volatility, Air Transport Services is 1.92 times less risky than Westinghouse Air. It trades about 0.25 of its potential returns per unit of risk. Westinghouse Air Brake is currently generating about 0.42 of returns per unit of risk over similar time horizon. If you would invest  18,450  in Westinghouse Air Brake on October 23, 2024 and sell it today you would earn a total of  1,135  from holding Westinghouse Air Brake or generate 6.15% return on investment over 90 days.

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

Air Transport Services  vs.  Westinghouse Air Brake

Air Transport Services

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Air Transport Services are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Air Transport reported solid returns over the last few months and may actually be approaching a breakup point.

Westinghouse Air Brake

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Westinghouse Air Brake are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Westinghouse Air reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Air Transport and Westinghouse Air

The main advantage of trading using opposite Air Transport and Westinghouse Air positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Air Transport 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 Transport Services 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.