Correlation Between BANCO and Westinghouse Air

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

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

Diversification Opportunities for BANCO and Westinghouse Air

-0.37

Correlation Coefficient

BANCO  Westinghouse Air

Very good diversification

The 3 months correlation between BANCO and Westinghouse is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding BANCO SANTANDER SA 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 BANCO 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 BANCO SANTANDER SA 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 BANCO i.e., BANCO and Westinghouse Air go up and down completely randomly.

Pair Corralation between BANCO and Westinghouse Air

Assuming the 90 days trading horizon BANCO SANTANDER SA is expected to generate 0.77 times more return on investment than Westinghouse Air. However, BANCO SANTANDER SA is 1.3 times less risky than Westinghouse Air. It trades about -0.24 of its potential returns per unit of risk. Westinghouse Air Brake is currently generating about -0.2 per unit of risk. If you would invest  9,235  in BANCO SANTANDER SA on October 9, 2024 and sell it today you would lose (421.00) from holding BANCO SANTANDER SA or give up 4.56% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.0%
Values	Daily Returns

BANCO SANTANDER SA  vs.  Westinghouse Air Brake

BANCO SANTANDER SA

Risk-Adjusted Performance

0 of 100

Very Weak

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

Westinghouse Air Brake

Risk-Adjusted Performance

3 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Westinghouse Air Brake are ranked lower than 3 (%) 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 BANCO and Westinghouse Air

The main advantage of trading using opposite BANCO and Westinghouse Air positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BANCO 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 BANCO SANTANDER SA 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.