Correlation Between Westinghouse Air and Avery Dennison

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

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

Diversification Opportunities for Westinghouse Air and Avery Dennison

0.66

Correlation Coefficient

Westinghouse Air  Avery Dennison

Poor diversification

The 3 months correlation between Westinghouse and Avery is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Westinghouse Air Brake and Avery Dennison in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avery Dennison and Westinghouse Air 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 Westinghouse Air Brake are associated (or correlated) with Avery Dennison. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avery Dennison has no effect on the direction of Westinghouse Air i.e., Westinghouse Air and Avery Dennison go up and down completely randomly.

Pair Corralation between Westinghouse Air and Avery Dennison

Assuming the 90 days trading horizon Westinghouse Air Brake is expected to under-perform the Avery Dennison. In addition to that, Westinghouse Air is 1.63 times more volatile than Avery Dennison. It trades about -0.09 of its total potential returns per unit of risk. Avery Dennison is currently generating about -0.12 per unit of volatility. If you would invest  57,745  in Avery Dennison on December 26, 2024 and sell it today you would lose (4,564) from holding Avery Dennison or give up 7.9% of portfolio value over 90 days.

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

Westinghouse Air Brake  vs.  Avery Dennison

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 latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Avery Dennison

Risk-Adjusted Performance

Very Weak

Over the last 90 days Avery Dennison has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Westinghouse Air and Avery Dennison

The main advantage of trading using opposite Westinghouse Air and Avery Dennison positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Westinghouse Air position performs unexpectedly, Avery Dennison 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 Avery Dennison will offset losses from the drop in Avery Dennison's long position.

The idea behind Westinghouse Air Brake and Avery Dennison 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.