Correlation Between First CommunityPFD and Westinghouse Air

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

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

Diversification Opportunities for First CommunityPFD and Westinghouse Air

-0.01

Correlation Coefficient

First CommunityPFD  Westinghouse Air

Good diversification

The 3 months correlation between First and Westinghouse is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding First Community 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 First CommunityPFD 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 First Community 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 First CommunityPFD i.e., First CommunityPFD and Westinghouse Air go up and down completely randomly.

Pair Corralation between First CommunityPFD and Westinghouse Air

Assuming the 90 days horizon First Community is expected to generate 0.11 times more return on investment than Westinghouse Air. However, First Community is 9.3 times less risky than Westinghouse Air. It trades about -0.13 of its potential returns per unit of risk. Westinghouse Air Brake is currently generating about -0.02 per unit of risk. If you would invest  940.00  in First Community on December 22, 2024 and sell it today you would lose (15.00) from holding First Community or give up 1.6% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

First Community  vs.  Westinghouse Air Brake

First CommunityPFD

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Community has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, First CommunityPFD is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail 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 somewhat strong basic indicators, Westinghouse Air is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with First CommunityPFD and Westinghouse Air

The main advantage of trading using opposite First CommunityPFD and Westinghouse Air positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First CommunityPFD 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 First Community 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.