Correlation Between Westinghouse Air and SOUTHERN

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

Diversification Opportunities for Westinghouse Air and SOUTHERN

-0.57

Correlation Coefficient

Westinghouse Air  SOUTHERN

Excellent diversification

The 3 months correlation between Westinghouse and SOUTHERN is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Westinghouse Air Brake and SOUTHERN PER CORP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SOUTHERN PER P 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 SOUTHERN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SOUTHERN PER P has no effect on the direction of Westinghouse Air i.e., Westinghouse Air and SOUTHERN go up and down completely randomly.

Pair Corralation between Westinghouse Air and SOUTHERN

Considering the 90-day investment horizon Westinghouse Air is expected to generate 14.49 times less return on investment than SOUTHERN. But when comparing it to its historical volatility, Westinghouse Air Brake is 35.48 times less risky than SOUTHERN. It trades about 0.1 of its potential returns per unit of risk. SOUTHERN PER CORP is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  11,308  in SOUTHERN PER CORP on October 5, 2024 and sell it today you would lose (291.00) from holding SOUTHERN PER CORP or give up 2.57% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	94.34%
Values	Daily Returns

Westinghouse Air Brake  vs.  SOUTHERN PER CORP

Westinghouse Air Brake

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Westinghouse Air Brake are ranked lower than 4 (%) 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.

SOUTHERN PER P

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SOUTHERN PER CORP has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, SOUTHERN is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Westinghouse Air and SOUTHERN

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

The idea behind Westinghouse Air Brake and SOUTHERN PER CORP 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..