Correlation Between Westinghouse Air and Commercial Vehicle

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

Diversification Opportunities for Westinghouse Air and Commercial Vehicle

0.2

Correlation Coefficient

Westinghouse Air  Commercial Vehicle

Modest diversification

The 3 months correlation between Westinghouse and Commercial is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Westinghouse Air Brake and Commercial Vehicle Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Commercial Vehicle 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 Commercial Vehicle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Commercial Vehicle has no effect on the direction of Westinghouse Air i.e., Westinghouse Air and Commercial Vehicle go up and down completely randomly.

Pair Corralation between Westinghouse Air and Commercial Vehicle

Considering the 90-day investment horizon Westinghouse Air Brake is expected to generate 0.52 times more return on investment than Commercial Vehicle. However, Westinghouse Air Brake is 1.92 times less risky than Commercial Vehicle. It trades about -0.05 of its potential returns per unit of risk. Commercial Vehicle Group is currently generating about -0.05 per unit of risk. If you would invest  19,952  in Westinghouse Air Brake on December 1, 2024 and sell it today you would lose (1,416) from holding Westinghouse Air Brake or give up 7.1% of portfolio value over 90 days.

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

Westinghouse Air Brake  vs.  Commercial Vehicle Group

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.

Commercial Vehicle

Risk-Adjusted Performance

Very Weak

Over the last 90 days Commercial Vehicle Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical and fundamental indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Westinghouse Air and Commercial Vehicle

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

The idea behind Westinghouse Air Brake and Commercial Vehicle Group 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.