Correlation Between Commonwealth Bank and Westpac Banking
Can any of the company-specific risk be diversified away by investing in both Commonwealth Bank and Westpac Banking 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 Commonwealth Bank and Westpac Banking into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Commonwealth Bank of and Westpac Banking, you can compare the effects of market volatilities on Commonwealth Bank and Westpac Banking 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 Commonwealth Bank with a short position of Westpac Banking. Check out your portfolio center. Please also check ongoing floating volatility patterns of Commonwealth Bank and Westpac Banking.
Diversification Opportunities for Commonwealth Bank and Westpac Banking
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Commonwealth and Westpac is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Commonwealth Bank of and Westpac Banking in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westpac Banking and Commonwealth Bank 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 Commonwealth Bank of are associated (or correlated) with Westpac Banking. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westpac Banking has no effect on the direction of Commonwealth Bank i.e., Commonwealth Bank and Westpac Banking go up and down completely randomly.
Pair Corralation between Commonwealth Bank and Westpac Banking
Assuming the 90 days trading horizon Commonwealth Bank of is expected to generate 1.19 times more return on investment than Westpac Banking. However, Commonwealth Bank is 1.19 times more volatile than Westpac Banking. It trades about -0.11 of its potential returns per unit of risk. Westpac Banking is currently generating about -0.3 per unit of risk. If you would invest 10,615 in Commonwealth Bank of on August 29, 2024 and sell it today you would lose (75.00) from holding Commonwealth Bank of or give up 0.71% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Commonwealth Bank of vs. Westpac Banking
Performance |
| Timeline |
| Commonwealth Bank |
| Westpac Banking |
Commonwealth Bank and Westpac Banking Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Commonwealth Bank and Westpac Banking
The main advantage of trading using opposite Commonwealth Bank and Westpac Banking positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Commonwealth Bank position performs unexpectedly, Westpac Banking 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 Westpac Banking will offset losses from the drop in Westpac Banking's long position.| Commonwealth Bank vs. Dicker Data | Commonwealth Bank vs. Australian Agricultural | Commonwealth Bank vs. Janison Education Group | Commonwealth Bank vs. Aristocrat Leisure |
| Westpac Banking vs. Origin Energy | Westpac Banking vs. Insurance Australia Group | Westpac Banking vs. Hotel Property Investments | Westpac Banking vs. Ecofibre |
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 Transaction History module to view history of all your transactions and understand their impact on performance.
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