Correlation Between Geely Automobile and Westinghouse Air

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

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

Diversification Opportunities for Geely Automobile and Westinghouse Air

0.72

Correlation Coefficient

Geely Automobile  Westinghouse Air

Poor diversification

The 3 months correlation between Geely and Westinghouse is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Geely Automobile Holdings 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 Geely Automobile 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 Geely Automobile Holdings 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 Geely Automobile i.e., Geely Automobile and Westinghouse Air go up and down completely randomly.

Pair Corralation between Geely Automobile and Westinghouse Air

Assuming the 90 days horizon Geely Automobile Holdings is expected to generate 2.59 times more return on investment than Westinghouse Air. However, Geely Automobile is 2.59 times more volatile than Westinghouse Air Brake. It trades about 0.07 of its potential returns per unit of risk. Westinghouse Air Brake is currently generating about 0.12 per unit of risk. If you would invest  161.00  in Geely Automobile Holdings on October 5, 2024 and sell it today you would earn a total of  18.00  from holding Geely Automobile Holdings or generate 11.18% return on investment over 90 days.

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

Geely Automobile Holdings  vs.  Westinghouse Air Brake

Geely Automobile Holdings

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Geely Automobile Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, Geely Automobile reported solid returns over the last few months and may actually be approaching a breakup point.

Westinghouse Air Brake

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Westinghouse Air Brake has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, Westinghouse Air may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Geely Automobile and Westinghouse Air

The main advantage of trading using opposite Geely Automobile and Westinghouse Air positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Geely Automobile 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 Geely Automobile Holdings 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 Transaction History module to view history of all your transactions and understand their impact on performance.