Correlation Between ResMed and Westinghouse Air

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

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

Diversification Opportunities for ResMed and Westinghouse Air

0.81

Correlation Coefficient

ResMed  Westinghouse Air

Very poor diversification

The 3 months correlation between ResMed and Westinghouse is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding ResMed Inc 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 ResMed 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 ResMed Inc 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 ResMed i.e., ResMed and Westinghouse Air go up and down completely randomly.

Pair Corralation between ResMed and Westinghouse Air

Assuming the 90 days horizon ResMed is expected to generate 2.92 times less return on investment than Westinghouse Air. In addition to that, ResMed is 1.48 times more volatile than Westinghouse Air Brake. It trades about 0.02 of its total potential returns per unit of risk. Westinghouse Air Brake is currently generating about 0.1 per unit of volatility. If you would invest  9,504  in Westinghouse Air Brake on September 27, 2024 and sell it today you would earn a total of  8,946  from holding Westinghouse Air Brake or generate 94.13% return on investment over 90 days.

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

ResMed Inc  vs.  Westinghouse Air Brake

ResMed Inc

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ResMed Inc are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, ResMed is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Westinghouse Air Brake

Risk-Adjusted Performance

11 of 100

Good

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 fragile basic indicators, Westinghouse Air reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ResMed and Westinghouse Air

The main advantage of trading using opposite ResMed and Westinghouse Air positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ResMed 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 ResMed Inc 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.

Check out your portfolio center.

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.