Correlation Between Westinghouse Air and Morgan Stanley

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

Diversification Opportunities for Westinghouse Air and Morgan Stanley

0.67

Correlation Coefficient

Westinghouse Air  Morgan Stanley

Poor diversification

The 3 months correlation between Westinghouse and Morgan is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Westinghouse Air Brake and Morgan Stanley Direct in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Morgan Stanley Direct 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 Morgan Stanley. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Morgan Stanley Direct has no effect on the direction of Westinghouse Air i.e., Westinghouse Air and Morgan Stanley go up and down completely randomly.

Pair Corralation between Westinghouse Air and Morgan Stanley

Considering the 90-day investment horizon Westinghouse Air Brake is expected to generate 0.81 times more return on investment than Morgan Stanley. However, Westinghouse Air Brake is 1.23 times less risky than Morgan Stanley. It trades about 0.1 of its potential returns per unit of risk. Morgan Stanley Direct is currently generating about 0.04 per unit of risk. If you would invest  10,292  in Westinghouse Air Brake on October 4, 2024 and sell it today you would earn a total of  8,605  from holding Westinghouse Air Brake or generate 83.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	48.19%
Values	Daily Returns

Westinghouse Air Brake  vs.  Morgan Stanley Direct

Westinghouse Air Brake

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Westinghouse Air Brake are ranked lower than 3 (%) 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.

Morgan Stanley Direct

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Morgan Stanley Direct are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating fundamental indicators, Morgan Stanley may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Westinghouse Air and Morgan Stanley

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

The idea behind Westinghouse Air Brake and Morgan Stanley Direct 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.