Correlation Between TAL Education and Westinghouse Air

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

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

Diversification Opportunities for TAL Education and Westinghouse Air

-0.32

Correlation Coefficient

TAL Education  Westinghouse Air

Very good diversification

The 3 months correlation between TAL and Westinghouse is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding TAL Education Group 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 TAL Education 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 TAL Education Group 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 TAL Education i.e., TAL Education and Westinghouse Air go up and down completely randomly.

Pair Corralation between TAL Education and Westinghouse Air

Assuming the 90 days trading horizon TAL Education is expected to generate 1.02 times less return on investment than Westinghouse Air. In addition to that, TAL Education is 3.29 times more volatile than Westinghouse Air Brake. It trades about 0.04 of its total potential returns per unit of risk. Westinghouse Air Brake is currently generating about 0.13 per unit of volatility. If you would invest  26,268  in Westinghouse Air Brake on October 11, 2024 and sell it today you would earn a total of  31,836  from holding Westinghouse Air Brake or generate 121.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.79%
Values	Daily Returns

TAL Education Group  vs.  Westinghouse Air Brake

TAL Education Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TAL Education Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, TAL Education is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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 somewhat weak basic indicators, Westinghouse Air may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with TAL Education and Westinghouse Air

The main advantage of trading using opposite TAL Education and Westinghouse Air positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TAL Education 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 TAL Education Group 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.