Correlation Between Westinghouse Air and Charoen Pokphand

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

Diversification Opportunities for Westinghouse Air and Charoen Pokphand

0.16

Correlation Coefficient

Westinghouse Air  Charoen Pokphand

Average diversification

The 3 months correlation between Westinghouse and Charoen is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Westinghouse Air Brake and Charoen Pokphand Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Charoen Pokphand Foods 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 Charoen Pokphand. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Charoen Pokphand Foods has no effect on the direction of Westinghouse Air i.e., Westinghouse Air and Charoen Pokphand go up and down completely randomly.

Pair Corralation between Westinghouse Air and Charoen Pokphand

Assuming the 90 days horizon Westinghouse Air Brake is expected to generate 0.62 times more return on investment than Charoen Pokphand. However, Westinghouse Air Brake is 1.62 times less risky than Charoen Pokphand. It trades about 0.3 of its potential returns per unit of risk. Charoen Pokphand Foods is currently generating about 0.02 per unit of risk. If you would invest  15,144  in Westinghouse Air Brake on September 14, 2024 and sell it today you would earn a total of  4,446  from holding Westinghouse Air Brake or generate 29.36% return on investment over 90 days.

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

Westinghouse Air Brake  vs.  Charoen Pokphand Foods

Westinghouse Air Brake

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Westinghouse Air Brake are ranked lower than 23 (%) 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.

Charoen Pokphand Foods

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Charoen Pokphand Foods are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Charoen Pokphand 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 Charoen Pokphand

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

The idea behind Westinghouse Air Brake and Charoen Pokphand Foods 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.