Correlation Between Microsoft and Westpac Banking
Can any of the company-specific risk be diversified away by investing in both Microsoft 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 Microsoft and Westpac Banking into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Westpac Banking Corp, you can compare the effects of market volatilities on Microsoft 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 Microsoft with a short position of Westpac Banking. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Westpac Banking.
Diversification Opportunities for Microsoft and Westpac Banking
-0.22 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Microsoft and Westpac is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Westpac Banking Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westpac Banking Corp and Microsoft 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 Microsoft 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 Corp has no effect on the direction of Microsoft i.e., Microsoft and Westpac Banking go up and down completely randomly.
Pair Corralation between Microsoft and Westpac Banking
Given the investment horizon of 90 days Microsoft is expected to generate 4.43 times more return on investment than Westpac Banking. However, Microsoft is 4.43 times more volatile than Westpac Banking Corp. It trades about 0.15 of its potential returns per unit of risk. Westpac Banking Corp is currently generating about -0.06 per unit of risk. If you would invest 40,955 in Microsoft on September 2, 2024 and sell it today you would earn a total of 1,391 from holding Microsoft or generate 3.4% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Microsoft vs. Westpac Banking Corp
Performance |
| Timeline |
| Microsoft |
| Westpac Banking Corp |
Microsoft and Westpac Banking Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Westpac Banking
The main advantage of trading using opposite Microsoft and Westpac Banking positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft 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.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| Westpac Banking vs. Ecofibre | Westpac Banking vs. iShares Global Healthcare | Westpac Banking vs. Ridley | Westpac Banking vs. Australian Dairy Farms |
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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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