Correlation Between Westinghouse Air and HDFC Bank

Can any of the company-specific risk be diversified away by investing in both Westinghouse Air and HDFC Bank 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 HDFC Bank 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 HDFC Bank Limited, you can compare the effects of market volatilities on Westinghouse Air and HDFC Bank 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 HDFC Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Westinghouse Air and HDFC Bank.

Diversification Opportunities for Westinghouse Air and HDFC Bank

0.78

Correlation Coefficient

Westinghouse Air  HDFC Bank

Poor diversification

The 3 months correlation between Westinghouse and HDFC is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Westinghouse Air Brake and HDFC Bank Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HDFC Bank Limited 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 HDFC Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HDFC Bank Limited has no effect on the direction of Westinghouse Air i.e., Westinghouse Air and HDFC Bank go up and down completely randomly.

Pair Corralation between Westinghouse Air and HDFC Bank

Assuming the 90 days trading horizon Westinghouse Air Brake is expected to generate 0.51 times more return on investment than HDFC Bank. However, Westinghouse Air Brake is 1.97 times less risky than HDFC Bank. It trades about 0.14 of its potential returns per unit of risk. HDFC Bank Limited is currently generating about 0.02 per unit of risk. If you would invest  26,011  in Westinghouse Air Brake on October 23, 2024 and sell it today you would earn a total of  35,372  from holding Westinghouse Air Brake or generate 135.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

Westinghouse Air Brake  vs.  HDFC Bank Limited

Westinghouse Air Brake

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Westinghouse Air Brake are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Westinghouse Air sustained solid returns over the last few months and may actually be approaching a breakup point.

HDFC Bank Limited

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Westinghouse Air and HDFC Bank

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

The idea behind Westinghouse Air Brake and HDFC Bank Limited 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.