Correlation Between Westinghouse Air and DR Horton

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

Diversification Opportunities for Westinghouse Air and DR Horton

-0.54

Correlation Coefficient

Westinghouse Air  DR Horton

Excellent diversification

The 3 months correlation between Westinghouse and DHI is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Westinghouse Air Brake and DR Horton in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DR Horton 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 DR Horton. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DR Horton has no effect on the direction of Westinghouse Air i.e., Westinghouse Air and DR Horton go up and down completely randomly.

Pair Corralation between Westinghouse Air and DR Horton

Considering the 90-day investment horizon Westinghouse Air Brake is expected to generate 0.62 times more return on investment than DR Horton. However, Westinghouse Air Brake is 1.62 times less risky than DR Horton. It trades about 0.16 of its potential returns per unit of risk. DR Horton is currently generating about -0.17 per unit of risk. If you would invest  16,396  in Westinghouse Air Brake on October 3, 2024 and sell it today you would earn a total of  2,563  from holding Westinghouse Air Brake or generate 15.63% return on investment over 90 days.

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

Westinghouse Air Brake  vs.  DR Horton

Westinghouse Air Brake

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Westinghouse Air Brake are ranked lower than 5 (%) 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.

DR Horton

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DR Horton has generated negative risk-adjusted returns adding no value to investors with long positions. Despite abnormal performance in the last few months, the Stock's technical indicators remain fairly strong which may send shares a bit higher in February 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Westinghouse Air and DR Horton

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

The idea behind Westinghouse Air Brake and DR Horton 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.