Correlation Between Magellan Financial and Westpac Banking
Can any of the company-specific risk be diversified away by investing in both Magellan 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 Magellan 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 Magellan Financial Group and Westpac Banking, you can compare the effects of market volatilities on Magellan 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 Magellan Financial with a short position of Westpac Banking. Check out your portfolio center. Please also check ongoing floating volatility patterns of Magellan Financial and Westpac Banking.
Diversification Opportunities for Magellan Financial and Westpac Banking
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Magellan and Westpac is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Magellan 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 Magellan 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 Magellan 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 Magellan Financial i.e., Magellan Financial and Westpac Banking go up and down completely randomly.
Pair Corralation between Magellan Financial and Westpac Banking
Assuming the 90 days trading horizon Magellan Financial Group is expected to generate 7.73 times more return on investment than Westpac Banking. However, Magellan Financial is 7.73 times more volatile than Westpac Banking. It trades about 0.04 of its potential returns per unit of risk. Westpac Banking is currently generating about 0.11 per unit of risk. If you would invest 795.00 in Magellan Financial Group on August 29, 2024 and sell it today you would earn a total of 293.00 from holding Magellan Financial Group or generate 36.86% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 47.09% |
| Values | Daily Returns |
Magellan Financial Group vs. Westpac Banking
Performance |
| Timeline |
| Magellan Financial |
| Westpac Banking |
Magellan Financial and Westpac Banking Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Magellan Financial and Westpac Banking
The main advantage of trading using opposite Magellan Financial and Westpac Banking positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Magellan 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.| Magellan Financial vs. Champion Iron | Magellan Financial vs. Ridley | Magellan Financial vs. Peel Mining | Magellan Financial vs. Australian Dairy Farms |
| Westpac Banking vs. Champion Iron | Westpac Banking vs. Ridley | Westpac Banking vs. Australian Dairy Farms | Westpac Banking vs. Perpetual Credit Income |
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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