Correlation Between Tesla and Westinghouse Air

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

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

Diversification Opportunities for Tesla and Westinghouse Air

0.5

Correlation Coefficient

Tesla  Westinghouse Air

Very weak diversification

The 3 months correlation between Tesla and Westinghouse is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Tesla 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 Tesla 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 Tesla 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 Tesla i.e., Tesla and Westinghouse Air go up and down completely randomly.

Pair Corralation between Tesla and Westinghouse Air

Given the investment horizon of 90 days Tesla Inc is expected to generate 4.2 times more return on investment than Westinghouse Air. However, Tesla is 4.2 times more volatile than Westinghouse Air Brake. It trades about 0.22 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  21,957  in Tesla Inc on October 15, 2024 and sell it today you would earn a total of  17,517  from holding Tesla Inc or generate 79.78% return on investment over 90 days.

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

Tesla Inc  vs.  Westinghouse Air Brake

Tesla Inc

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Tesla Inc are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat abnormal essential indicators, Tesla sustained solid returns over the last few months and may actually be approaching a breakup point.

Westinghouse Air Brake

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Westinghouse Air Brake are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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 Tesla and Westinghouse Air

The main advantage of trading using opposite Tesla and Westinghouse Air positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tesla 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 Tesla 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.