Correlation Between Westinghouse Air and GEELY AUTOMOBILE

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

Diversification Opportunities for Westinghouse Air and GEELY AUTOMOBILE

0.73

Correlation Coefficient

Westinghouse Air  GEELY AUTOMOBILE

Poor diversification

The 3 months correlation between Westinghouse and GEELY is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Westinghouse Air Brake and GEELY AUTOMOBILE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GEELY AUTOMOBILE 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 GEELY AUTOMOBILE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GEELY AUTOMOBILE has no effect on the direction of Westinghouse Air i.e., Westinghouse Air and GEELY AUTOMOBILE go up and down completely randomly.

Pair Corralation between Westinghouse Air and GEELY AUTOMOBILE

Assuming the 90 days horizon Westinghouse Air is expected to generate 1.13 times less return on investment than GEELY AUTOMOBILE. But when comparing it to its historical volatility, Westinghouse Air Brake is 1.7 times less risky than GEELY AUTOMOBILE. It trades about 0.09 of its potential returns per unit of risk. GEELY AUTOMOBILE is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  92.00  in GEELY AUTOMOBILE on October 5, 2024 and sell it today you would earn a total of  84.00  from holding GEELY AUTOMOBILE or generate 91.3% return on investment over 90 days.

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

Westinghouse Air Brake  vs.  GEELY AUTOMOBILE

Westinghouse Air Brake

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Westinghouse Air Brake has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, Westinghouse Air may actually be approaching a critical reversion point that can send shares even higher in February 2025.

GEELY AUTOMOBILE

Risk-Adjusted Performance

0 of 100

Modest

Over the last 90 days GEELY AUTOMOBILE has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively uncertain basic indicators, GEELY AUTOMOBILE unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Westinghouse Air and GEELY AUTOMOBILE

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

The idea behind Westinghouse Air Brake and GEELY AUTOMOBILE 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.