Correlation Between Westport Fuel and Freightcar America

Can any of the company-specific risk be diversified away by investing in both Westport Fuel and Freightcar America 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 Westport Fuel and Freightcar America into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Westport Fuel Systems and Freightcar America, you can compare the effects of market volatilities on Westport Fuel and Freightcar America 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 Westport Fuel with a short position of Freightcar America. Check out your portfolio center. Please also check ongoing floating volatility patterns of Westport Fuel and Freightcar America.

Diversification Opportunities for Westport Fuel and Freightcar America

0.37

Correlation Coefficient

Westport Fuel  Freightcar America

Weak diversification

The 3 months correlation between Westport and Freightcar is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Westport Fuel Systems and Freightcar America in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Freightcar America and Westport Fuel 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 Westport Fuel Systems are associated (or correlated) with Freightcar America. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Freightcar America has no effect on the direction of Westport Fuel i.e., Westport Fuel and Freightcar America go up and down completely randomly.

Pair Corralation between Westport Fuel and Freightcar America

Given the investment horizon of 90 days Westport Fuel Systems is expected to generate 0.84 times more return on investment than Freightcar America. However, Westport Fuel Systems is 1.19 times less risky than Freightcar America. It trades about -0.03 of its potential returns per unit of risk. Freightcar America is currently generating about -0.06 per unit of risk. If you would invest  475.00  in Westport Fuel Systems on November 28, 2024 and sell it today you would lose (46.00) from holding Westport Fuel Systems or give up 9.68% of portfolio value over 90 days.

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

Westport Fuel Systems  vs.  Freightcar America

Westport Fuel Systems

Risk-Adjusted Performance

Very Weak

Over the last 90 days Westport Fuel Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Freightcar America

Risk-Adjusted Performance

Very Weak

Over the last 90 days Freightcar America has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's forward indicators remain quite persistent which may send shares a bit higher in March 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Westport Fuel and Freightcar America

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

The idea behind Westport Fuel Systems and Freightcar America 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.