Correlation Between Westinghouse Air and Barrett Business

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

Diversification Opportunities for Westinghouse Air and Barrett Business

0.89

Correlation Coefficient

Westinghouse Air  Barrett Business

Very poor diversification

The 3 months correlation between Westinghouse and Barrett is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Westinghouse Air Brake and Barrett Business Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Barrett Business Services 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 Barrett Business. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Barrett Business Services has no effect on the direction of Westinghouse Air i.e., Westinghouse Air and Barrett Business go up and down completely randomly.

Pair Corralation between Westinghouse Air and Barrett Business

Assuming the 90 days horizon Westinghouse Air Brake is expected to under-perform the Barrett Business. But the stock apears to be less risky and, when comparing its historical volatility, Westinghouse Air Brake is 1.06 times less risky than Barrett Business. The stock trades about -0.17 of its potential returns per unit of risk. The Barrett Business Services is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  4,040  in Barrett Business Services on October 10, 2024 and sell it today you would earn a total of  0.00  from holding Barrett Business Services or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	94.44%
Values	Daily Returns

Westinghouse Air Brake  vs.  Barrett Business Services

Westinghouse Air Brake

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Westinghouse Air Brake are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Westinghouse Air may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Barrett Business Services

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Barrett Business Services are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Barrett Business reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Westinghouse Air and Barrett Business

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

The idea behind Westinghouse Air Brake and Barrett Business Services 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.