Correlation Between Westinghouse Air and MTRLimited

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

Diversification Opportunities for Westinghouse Air and MTRLimited

-0.47

Correlation Coefficient

Westinghouse Air  MTRLimited

Very good diversification

The 3 months correlation between Westinghouse and MTRLimited is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Westinghouse Air Brake and MTR Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MTR Limited 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 MTRLimited. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MTR Limited has no effect on the direction of Westinghouse Air i.e., Westinghouse Air and MTRLimited go up and down completely randomly.

Pair Corralation between Westinghouse Air and MTRLimited

Assuming the 90 days horizon Westinghouse Air Brake is expected to generate 0.61 times more return on investment than MTRLimited. However, Westinghouse Air Brake is 1.65 times less risky than MTRLimited. It trades about 0.09 of its potential returns per unit of risk. MTR Limited is currently generating about 0.04 per unit of risk. If you would invest  9,317  in Westinghouse Air Brake on October 4, 2024 and sell it today you would earn a total of  8,908  from holding Westinghouse Air Brake or generate 95.61% return on investment over 90 days.

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

Westinghouse Air Brake  vs.  MTR Limited

Westinghouse Air Brake

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Westinghouse Air Brake are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Westinghouse Air may actually be approaching a critical reversion point that can send shares even higher in February 2025.

MTR Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MTR Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, MTRLimited is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Westinghouse Air and MTRLimited

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

The idea behind Westinghouse Air Brake and MTR 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..