Correlation Between Westinghouse Air and Digi International

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

Diversification Opportunities for Westinghouse Air and Digi International

0.94

Correlation Coefficient

Westinghouse Air  Digi International

Almost no diversification

The 3 months correlation between Westinghouse and Digi is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Westinghouse Air Brake and Digi International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Digi International 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 Digi International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Digi International has no effect on the direction of Westinghouse Air i.e., Westinghouse Air and Digi International go up and down completely randomly.

Pair Corralation between Westinghouse Air and Digi International

Considering the 90-day investment horizon Westinghouse Air is expected to generate 27.78 times less return on investment than Digi International. But when comparing it to its historical volatility, Westinghouse Air Brake is 1.81 times less risky than Digi International. It trades about 0.0 of its potential returns per unit of risk. Digi International is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  3,067  in Digi International on September 21, 2024 and sell it today you would earn a total of  158.00  from holding Digi International or generate 5.15% 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.  Digi International

Westinghouse Air Brake

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Westinghouse Air Brake are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Westinghouse Air is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Digi International

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Digi International are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile forward indicators, Digi International demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Westinghouse Air and Digi International

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

The idea behind Westinghouse Air Brake and Digi International 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.

Check out your portfolio center.

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.