Correlation Between Westinghouse Air and BRIT AMER

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

Diversification Opportunities for Westinghouse Air and BRIT AMER

0.8

Correlation Coefficient

Westinghouse Air  BRIT AMER

Very poor diversification

The 3 months correlation between Westinghouse and BRIT is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Westinghouse Air Brake and BRIT AMER TOBACCO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BRIT AMER TOBACCO 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 BRIT AMER. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BRIT AMER TOBACCO has no effect on the direction of Westinghouse Air i.e., Westinghouse Air and BRIT AMER go up and down completely randomly.

Pair Corralation between Westinghouse Air and BRIT AMER

Assuming the 90 days horizon Westinghouse Air Brake is expected to generate 1.23 times more return on investment than BRIT AMER. However, Westinghouse Air is 1.23 times more volatile than BRIT AMER TOBACCO. It trades about 0.14 of its potential returns per unit of risk. BRIT AMER TOBACCO is currently generating about 0.16 per unit of risk. If you would invest  14,509  in Westinghouse Air Brake on October 7, 2024 and sell it today you would earn a total of  4,091  from holding Westinghouse Air Brake or generate 28.2% return on investment over 90 days.

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

Westinghouse Air Brake  vs.  BRIT AMER TOBACCO

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.

BRIT AMER TOBACCO

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BRIT AMER TOBACCO are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, BRIT AMER unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Westinghouse Air and BRIT AMER

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

The idea behind Westinghouse Air Brake and BRIT AMER TOBACCO 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.