Correlation Between Westinghouse Air and Vulcan Materials

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

Diversification Opportunities for Westinghouse Air and Vulcan Materials

0.92

Correlation Coefficient

Westinghouse Air  Vulcan Materials

Almost no diversification

The 3 months correlation between Westinghouse and Vulcan is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Westinghouse Air Brake and Vulcan Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vulcan Materials 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 Vulcan Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vulcan Materials has no effect on the direction of Westinghouse Air i.e., Westinghouse Air and Vulcan Materials go up and down completely randomly.

Pair Corralation between Westinghouse Air and Vulcan Materials

Assuming the 90 days trading horizon Westinghouse Air Brake is expected to generate 0.72 times more return on investment than Vulcan Materials. However, Westinghouse Air Brake is 1.38 times less risky than Vulcan Materials. It trades about 0.13 of its potential returns per unit of risk. Vulcan Materials is currently generating about 0.07 per unit of risk. If you would invest  26,268  in Westinghouse Air Brake on October 11, 2024 and sell it today you would earn a total of  31,836  from holding Westinghouse Air Brake or generate 121.2% return on investment over 90 days.

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

Westinghouse Air Brake  vs.  Vulcan Materials

Westinghouse Air Brake

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Westinghouse Air Brake are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Westinghouse Air may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Vulcan Materials

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vulcan Materials are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain primary indicators, Vulcan Materials sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Westinghouse Air and Vulcan Materials

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

The idea behind Westinghouse Air Brake and Vulcan Materials 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.