Correlation Between Union Pacific and Westinghouse Air

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

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

Diversification Opportunities for Union Pacific and Westinghouse Air

0.13

Correlation Coefficient

Union Pacific  Westinghouse Air

Average diversification

The 3 months correlation between Union and Westinghouse is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Union Pacific 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 Union Pacific 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 Union Pacific 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 Union Pacific i.e., Union Pacific and Westinghouse Air go up and down completely randomly.

Pair Corralation between Union Pacific and Westinghouse Air

Considering the 90-day investment horizon Union Pacific is expected to generate 0.69 times more return on investment than Westinghouse Air. However, Union Pacific is 1.46 times less risky than Westinghouse Air. It trades about 0.04 of its potential returns per unit of risk. Westinghouse Air Brake is currently generating about -0.03 per unit of risk. If you would invest  22,654  in Union Pacific on December 30, 2024 and sell it today you would earn a total of  561.00  from holding Union Pacific or generate 2.48% return on investment over 90 days.

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

Union Pacific  vs.  Westinghouse Air Brake

Union Pacific

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Union Pacific are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Union Pacific is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Westinghouse Air Brake

Risk-Adjusted Performance

Very Weak

Over the last 90 days Westinghouse Air Brake has generated negative risk-adjusted returns adding no value to investors with long positions. 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 Union Pacific and Westinghouse Air

The main advantage of trading using opposite Union Pacific and Westinghouse Air positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Union Pacific 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 Union Pacific 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.