Correlation Between Westinghouse Air and Edwards Lifesciences

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

Diversification Opportunities for Westinghouse Air and Edwards Lifesciences

0.4

Correlation Coefficient

Westinghouse Air  Edwards Lifesciences

Very weak diversification

The 3 months correlation between Westinghouse and Edwards is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Westinghouse Air Brake and Edwards Lifesciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Edwards Lifesciences 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 Edwards Lifesciences. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Edwards Lifesciences has no effect on the direction of Westinghouse Air i.e., Westinghouse Air and Edwards Lifesciences go up and down completely randomly.

Pair Corralation between Westinghouse Air and Edwards Lifesciences

Assuming the 90 days horizon Westinghouse Air Brake is expected to generate 0.86 times more return on investment than Edwards Lifesciences. However, Westinghouse Air Brake is 1.16 times less risky than Edwards Lifesciences. It trades about 0.15 of its potential returns per unit of risk. Edwards Lifesciences is currently generating about 0.06 per unit of risk. If you would invest  17,591  in Westinghouse Air Brake on October 26, 2024 and sell it today you would earn a total of  2,274  from holding Westinghouse Air Brake or generate 12.93% return on investment over 90 days.

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

Westinghouse Air Brake  vs.  Edwards Lifesciences

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

Edwards Lifesciences

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Edwards Lifesciences are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Edwards Lifesciences may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Westinghouse Air and Edwards Lifesciences

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

The idea behind Westinghouse Air Brake and Edwards Lifesciences 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.