Correlation Between Ultra Clean and Westinghouse Air

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

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

Diversification Opportunities for Ultra Clean and Westinghouse Air

0.21

Correlation Coefficient

Ultra Clean  Westinghouse Air

Modest diversification

The 3 months correlation between Ultra and Westinghouse is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Ultra Clean 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 Ultra Clean 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 Ultra Clean 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 Ultra Clean i.e., Ultra Clean and Westinghouse Air go up and down completely randomly.

Pair Corralation between Ultra Clean and Westinghouse Air

Given the investment horizon of 90 days Ultra Clean Holdings is expected to generate 2.54 times more return on investment than Westinghouse Air. However, Ultra Clean is 2.54 times more volatile than Westinghouse Air Brake. It trades about 0.13 of its potential returns per unit of risk. Westinghouse Air Brake is currently generating about 0.07 per unit of risk. If you would invest  3,521  in Ultra Clean Holdings on September 19, 2024 and sell it today you would earn a total of  236.00  from holding Ultra Clean Holdings or generate 6.7% return on investment over 90 days.

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

Ultra Clean Holdings  vs.  Westinghouse Air Brake

Ultra Clean Holdings

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ultra Clean Holdings are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Ultra Clean may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Westinghouse Air Brake

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Westinghouse Air Brake are ranked lower than 13 (%) 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 January 2025.

Pair Trading with Ultra Clean and Westinghouse Air

The main advantage of trading using opposite Ultra Clean and Westinghouse Air positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ultra Clean 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 Ultra Clean 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.