Correlation Between Westinghouse Air and Adobe

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

Diversification Opportunities for Westinghouse Air and Adobe

0.56

Correlation Coefficient

Westinghouse Air  Adobe

Very weak diversification

The 3 months correlation between Westinghouse and Adobe is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Westinghouse Air Brake and Adobe Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adobe Inc 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 Adobe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adobe Inc has no effect on the direction of Westinghouse Air i.e., Westinghouse Air and Adobe go up and down completely randomly.

Pair Corralation between Westinghouse Air and Adobe

Assuming the 90 days horizon Westinghouse Air Brake is expected to generate 1.02 times more return on investment than Adobe. However, Westinghouse Air is 1.02 times more volatile than Adobe Inc. It trades about -0.06 of its potential returns per unit of risk. Adobe Inc is currently generating about -0.15 per unit of risk. If you would invest  18,426  in Westinghouse Air Brake on December 22, 2024 and sell it today you would lose (1,436) from holding Westinghouse Air Brake or give up 7.79% of portfolio value over 90 days.

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

Westinghouse Air Brake  vs.  Adobe Inc

Westinghouse Air Brake

Risk-Adjusted Performance

Very Weak

Over the last 90 days Westinghouse Air Brake has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady 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.

Adobe Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Adobe Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Westinghouse Air and Adobe

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

The idea behind Westinghouse Air Brake and Adobe Inc 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.