Correlation Between EP Financial and Westpac Banking
Can any of the company-specific risk be diversified away by investing in both EP Financial 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 EP Financial and Westpac Banking into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between EP Financial Group and Westpac Banking, you can compare the effects of market volatilities on EP Financial 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 EP Financial with a short position of Westpac Banking. Check out your portfolio center. Please also check ongoing floating volatility patterns of EP Financial and Westpac Banking.
Diversification Opportunities for EP Financial and Westpac Banking
0.37 | Correlation Coefficient |
Weak diversification
The 3 months correlation between EP1 and Westpac is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding EP Financial Group and Westpac Banking in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westpac Banking and EP Financial 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 EP Financial Group 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 EP Financial i.e., EP Financial and Westpac Banking go up and down completely randomly.
Pair Corralation between EP Financial and Westpac Banking
Assuming the 90 days trading horizon EP Financial Group is expected to generate 3.88 times more return on investment than Westpac Banking. However, EP Financial is 3.88 times more volatile than Westpac Banking. It trades about 0.26 of its potential returns per unit of risk. Westpac Banking is currently generating about 0.03 per unit of risk. If you would invest 47.00 in EP Financial Group on September 12, 2024 and sell it today you would earn a total of 5.00 from holding EP Financial Group or generate 10.64% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
EP Financial Group vs. Westpac Banking
Performance |
| Timeline |
| EP Financial Group |
| Westpac Banking |
EP Financial and Westpac Banking Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with EP Financial and Westpac Banking
The main advantage of trading using opposite EP Financial and Westpac Banking positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EP Financial 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.| EP Financial vs. Richmond Vanadium Technology | EP Financial vs. Cleanaway Waste Management | EP Financial vs. Global Health | EP Financial vs. Oceania Healthcare |
| Westpac Banking vs. Carnegie Clean Energy | Westpac Banking vs. Queste Communications | Westpac Banking vs. Gold Road Resources | Westpac Banking vs. Oneview Healthcare PLC |
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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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