Correlation Between Westinghouse Air and BlueScope Steel

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

Diversification Opportunities for Westinghouse Air and BlueScope Steel

-0.18

Correlation Coefficient

Westinghouse Air  BlueScope Steel

Good diversification

The 3 months correlation between Westinghouse and BlueScope is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Westinghouse Air Brake and BlueScope Steel Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BlueScope Steel 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 BlueScope Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BlueScope Steel has no effect on the direction of Westinghouse Air i.e., Westinghouse Air and BlueScope Steel go up and down completely randomly.

Pair Corralation between Westinghouse Air and BlueScope Steel

Assuming the 90 days horizon Westinghouse Air Brake is expected to generate 0.67 times more return on investment than BlueScope Steel. However, Westinghouse Air Brake is 1.49 times less risky than BlueScope Steel. It trades about -0.16 of its potential returns per unit of risk. BlueScope Steel Limited is currently generating about -0.48 per unit of risk. If you would invest  19,145  in Westinghouse Air Brake on October 6, 2024 and sell it today you would lose (660.00) from holding Westinghouse Air Brake or give up 3.45% of portfolio value over 90 days.

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

Westinghouse Air Brake  vs.  BlueScope Steel Limited

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 unsteady basic indicators, Westinghouse Air may actually be approaching a critical reversion point that can send shares even higher in February 2025.

BlueScope Steel

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Westinghouse Air and BlueScope Steel

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

The idea behind Westinghouse Air Brake and BlueScope Steel Limited 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.