Correlation Between Westinghouse Air and Melco Resorts

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

Diversification Opportunities for Westinghouse Air and Melco Resorts

-0.35
  Correlation Coefficient

Very good diversification

The 3 months correlation between Westinghouse and Melco is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Westinghouse Air Brake and Melco Resorts Entertainment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Melco Resorts Entert 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 Melco Resorts. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Melco Resorts Entert has no effect on the direction of Westinghouse Air i.e., Westinghouse Air and Melco Resorts go up and down completely randomly.

Pair Corralation between Westinghouse Air and Melco Resorts

Assuming the 90 days trading horizon Westinghouse Air Brake is expected to generate 0.42 times more return on investment than Melco Resorts. However, Westinghouse Air Brake is 2.41 times less risky than Melco Resorts. It trades about 0.13 of its potential returns per unit of risk. Melco Resorts Entertainment is currently generating about -0.03 per unit of risk. If you would invest  25,818  in Westinghouse Air Brake on October 10, 2024 and sell it today you would earn a total of  32,870  from holding Westinghouse Air Brake or generate 127.31% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy99.8%
ValuesDaily Returns

Westinghouse Air Brake  vs.  Melco Resorts Entertainment

 Performance 
       Timeline  
Westinghouse Air Brake 

Risk-Adjusted Performance

14 of 100

 
Weak
 
Strong
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 weak basic indicators, Westinghouse Air sustained solid returns over the last few months and may actually be approaching a breakup point.
Melco Resorts Entert 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Melco Resorts Entertainment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's essential indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Westinghouse Air and Melco Resorts Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Westinghouse Air and Melco Resorts

The main advantage of trading using opposite Westinghouse Air and Melco Resorts positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Westinghouse Air position performs unexpectedly, Melco Resorts 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 Melco Resorts will offset losses from the drop in Melco Resorts' long position.
The idea behind Westinghouse Air Brake and Melco Resorts Entertainment 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.

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