Correlation Between Westinghouse Air and Rave Restaurant

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

Diversification Opportunities for Westinghouse Air and Rave Restaurant

0.87

Correlation Coefficient

Westinghouse Air  Rave Restaurant

Very poor diversification

The 3 months correlation between Westinghouse and Rave is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Westinghouse Air Brake and Rave Restaurant Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rave Restaurant Group 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 Rave Restaurant. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rave Restaurant Group has no effect on the direction of Westinghouse Air i.e., Westinghouse Air and Rave Restaurant go up and down completely randomly.

Pair Corralation between Westinghouse Air and Rave Restaurant

Considering the 90-day investment horizon Westinghouse Air is expected to generate 1.2 times less return on investment than Rave Restaurant. But when comparing it to its historical volatility, Westinghouse Air Brake is 2.48 times less risky than Rave Restaurant. It trades about 0.11 of its potential returns per unit of risk. Rave Restaurant Group is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  152.00  in Rave Restaurant Group on September 19, 2024 and sell it today you would earn a total of  118.00  from holding Rave Restaurant Group or generate 77.63% return on investment over 90 days.

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

Westinghouse Air Brake  vs.  Rave Restaurant Group

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 January 2025.

Rave Restaurant Group

Risk-Adjusted Performance

13 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Rave Restaurant Group are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Rave Restaurant exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Westinghouse Air and Rave Restaurant

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

The idea behind Westinghouse Air Brake and Rave Restaurant 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.