Correlation Between Standard and Westport Fuel

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

By analyzing existing cross correlation between Standard Motor Products and Westport Fuel Systems, you can compare the effects of market volatilities on Standard and Westport Fuel 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 Standard with a short position of Westport Fuel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Standard and Westport Fuel.

Diversification Opportunities for Standard and Westport Fuel

0.1

Correlation Coefficient

Standard  Westport Fuel

Average diversification

The 3 months correlation between Standard and Westport is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Standard Motor Products and Westport Fuel Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westport Fuel Systems and Standard 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 Standard Motor Products are associated (or correlated) with Westport Fuel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westport Fuel Systems has no effect on the direction of Standard i.e., Standard and Westport Fuel go up and down completely randomly.

Pair Corralation between Standard and Westport Fuel

Considering the 90-day investment horizon Standard Motor Products is expected to generate 0.34 times more return on investment than Westport Fuel. However, Standard Motor Products is 2.97 times less risky than Westport Fuel. It trades about -0.37 of its potential returns per unit of risk. Westport Fuel Systems is currently generating about -0.12 per unit of risk. If you would invest  3,381  in Standard Motor Products on October 6, 2024 and sell it today you would lose (299.00) from holding Standard Motor Products or give up 8.84% of portfolio value over 90 days.

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

Standard Motor Products  vs.  Westport Fuel Systems

Standard Motor Products

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Standard Motor Products are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable primary indicators, Standard is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Westport Fuel Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Westport Fuel Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Standard and Westport Fuel

The main advantage of trading using opposite Standard and Westport Fuel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Standard position performs unexpectedly, Westport Fuel 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 Westport Fuel will offset losses from the drop in Westport Fuel's long position.

The idea behind Standard Motor Products and Westport Fuel Systems 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.