Correlation Between Westinghouse Air and Canadian Pacific
Can any of the company-specific risk be diversified away by investing in both Westinghouse Air and Canadian Pacific 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 Canadian Pacific 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 Canadian Pacific Railway, you can compare the effects of market volatilities on Westinghouse Air and Canadian Pacific 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 Canadian Pacific. Check out your portfolio center. Please also check ongoing floating volatility patterns of Westinghouse Air and Canadian Pacific.
Diversification Opportunities for Westinghouse Air and Canadian Pacific
0.25 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Westinghouse and Canadian is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Westinghouse Air Brake and Canadian Pacific Railway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian Pacific Railway 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 Canadian Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian Pacific Railway has no effect on the direction of Westinghouse Air i.e., Westinghouse Air and Canadian Pacific go up and down completely randomly.
Pair Corralation between Westinghouse Air and Canadian Pacific
Considering the 90-day investment horizon Westinghouse Air is expected to generate 1.1 times less return on investment than Canadian Pacific. But when comparing it to its historical volatility, Westinghouse Air Brake is 1.21 times less risky than Canadian Pacific. It trades about 0.33 of its potential returns per unit of risk. Canadian Pacific Railway is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest 7,237 in Canadian Pacific Railway on November 1, 2024 and sell it today you would earn a total of 647.00 from holding Canadian Pacific Railway or generate 8.94% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Westinghouse Air Brake vs. Canadian Pacific Railway
Performance |
| Timeline |
| Westinghouse Air Brake |
| Canadian Pacific Railway |
Westinghouse Air and Canadian Pacific Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Westinghouse Air and Canadian Pacific
The main advantage of trading using opposite Westinghouse Air and Canadian Pacific positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Westinghouse Air position performs unexpectedly, Canadian Pacific 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 Canadian Pacific will offset losses from the drop in Canadian Pacific's long position.| Westinghouse Air vs. Greenbrier Companies | Westinghouse Air vs. LB Foster | Westinghouse Air vs. Freightcar America | Westinghouse Air vs. CSX Corporation |
| Canadian Pacific vs. Union Pacific | Canadian Pacific vs. CSX Corporation | Canadian Pacific vs. Norfolk Southern | Canadian Pacific vs. Westinghouse Air Brake |
Check out your portfolio center.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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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