Correlation Between Easterly Government and Westinghouse Air

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

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

Diversification Opportunities for Easterly Government and Westinghouse Air

-0.46

Correlation Coefficient

Easterly Government  Westinghouse Air

Very good diversification

The 3 months correlation between Easterly and Westinghouse is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Easterly Government Properties 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 Easterly Government 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 Easterly Government Properties 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 Easterly Government i.e., Easterly Government and Westinghouse Air go up and down completely randomly.

Pair Corralation between Easterly Government and Westinghouse Air

Assuming the 90 days horizon Easterly Government Properties is expected to generate 1.3 times more return on investment than Westinghouse Air. However, Easterly Government is 1.3 times more volatile than Westinghouse Air Brake. It trades about 0.04 of its potential returns per unit of risk. Westinghouse Air Brake is currently generating about -0.16 per unit of risk. If you would invest  1,108  in Easterly Government Properties on October 6, 2024 and sell it today you would earn a total of  12.00  from holding Easterly Government Properties or generate 1.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	94.44%
Values	Daily Returns

Easterly Government Properties  vs.  Westinghouse Air Brake

Easterly Government

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Easterly Government Properties has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Easterly Government is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Westinghouse Air Brake

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Westinghouse Air Brake are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Westinghouse Air may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Easterly Government and Westinghouse Air

The main advantage of trading using opposite Easterly Government and Westinghouse Air positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Easterly Government 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 Easterly Government Properties 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.