Correlation Between Westinghouse Air and KRISPY KREME

Can any of the company-specific risk be diversified away by investing in both Westinghouse Air and KRISPY KREME 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 KRISPY KREME 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 KRISPY KREME DL 01, you can compare the effects of market volatilities on Westinghouse Air and KRISPY KREME 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 KRISPY KREME. Check out your portfolio center. Please also check ongoing floating volatility patterns of Westinghouse Air and KRISPY KREME.

Diversification Opportunities for Westinghouse Air and KRISPY KREME

0.04

Correlation Coefficient

Westinghouse Air  KRISPY KREME

Significant diversification

The 3 months correlation between Westinghouse and KRISPY is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Westinghouse Air Brake and KRISPY KREME DL 01 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KRISPY KREME DL 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 KRISPY KREME. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KRISPY KREME DL has no effect on the direction of Westinghouse Air i.e., Westinghouse Air and KRISPY KREME go up and down completely randomly.

Pair Corralation between Westinghouse Air and KRISPY KREME

Assuming the 90 days horizon Westinghouse Air Brake is expected to generate 0.59 times more return on investment than KRISPY KREME. However, Westinghouse Air Brake is 1.71 times less risky than KRISPY KREME. It trades about 0.11 of its potential returns per unit of risk. KRISPY KREME DL 01 is currently generating about -0.02 per unit of risk. If you would invest  14,873  in Westinghouse Air Brake on September 22, 2024 and sell it today you would earn a total of  3,332  from holding Westinghouse Air Brake or generate 22.4% return on investment over 90 days.

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

Westinghouse Air Brake  vs.  KRISPY KREME DL 01

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 nearly fragile basic indicators, Westinghouse Air reported solid returns over the last few months and may actually be approaching a breakup point.

KRISPY KREME DL

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KRISPY KREME DL 01 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Westinghouse Air and KRISPY KREME

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

The idea behind Westinghouse Air Brake and KRISPY KREME DL 01 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.