Correlation Between Westport Fuel and Westinghouse Air

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

Diversification Opportunities for Westport Fuel and Westinghouse Air

-0.87

Correlation Coefficient

Westport Fuel  Westinghouse Air

Pay attention - limited upside

The 3 months correlation between Westport and Westinghouse is -0.87. Overlapping area represents the amount of risk that can be diversified away by holding Westport Fuel Systems and Westinghouse Air Brake in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westinghouse Air Brake 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 Westinghouse Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westinghouse Air Brake has no effect on the direction of Westport Fuel i.e., Westport Fuel and Westinghouse Air go up and down completely randomly.

Pair Corralation between Westport Fuel and Westinghouse Air

Given the investment horizon of 90 days Westport Fuel Systems is expected to under-perform the Westinghouse Air. In addition to that, Westport Fuel is 1.82 times more volatile than Westinghouse Air Brake. It trades about -0.17 of its total potential returns per unit of risk. Westinghouse Air Brake is currently generating about 0.24 per unit of volatility. If you would invest  16,940  in Westinghouse Air Brake on August 30, 2024 and sell it today you would earn a total of  3,064  from holding Westinghouse Air Brake or generate 18.09% return on investment over 90 days.

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

Westport Fuel Systems  vs.  Westinghouse Air Brake

Westport Fuel Systems

Risk-Adjusted Performance

0 of 100

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 weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in December 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Westinghouse Air Brake

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Westinghouse Air Brake are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Westinghouse Air sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Westport Fuel and Westinghouse Air

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

The idea behind Westport Fuel Systems and Westinghouse Air Brake 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.