Correlation Between National Australia and Westpac Banking
Can any of the company-specific risk be diversified away by investing in both National Australia 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 National Australia and Westpac Banking into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between National Australia Bank and Westpac Banking Corp, you can compare the effects of market volatilities on National Australia 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 National Australia with a short position of Westpac Banking. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Australia and Westpac Banking.
Diversification Opportunities for National Australia and Westpac Banking
0.29 | Correlation Coefficient |
Modest diversification
The 3 months correlation between National and Westpac is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding National Australia Bank 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 National Australia 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 National Australia Bank 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 National Australia i.e., National Australia and Westpac Banking go up and down completely randomly.
Pair Corralation between National Australia and Westpac Banking
Assuming the 90 days trading horizon National Australia is expected to generate 10.55 times less return on investment than Westpac Banking. But when comparing it to its historical volatility, National Australia Bank is 4.41 times less risky than Westpac Banking. It trades about 0.09 of its potential returns per unit of risk. Westpac Banking Corp is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest 1,869 in Westpac Banking Corp on August 25, 2024 and sell it today you would earn a total of 1,514 from holding Westpac Banking Corp or generate 81.01% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
National Australia Bank vs. Westpac Banking Corp
Performance |
| Timeline |
| National Australia Bank |
| Westpac Banking Corp |
National Australia and Westpac Banking Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with National Australia and Westpac Banking
The main advantage of trading using opposite National Australia and Westpac Banking positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Australia 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.| National Australia vs. DY6 Metals | National Australia vs. Perseus Mining | National Australia vs. Aurelia Metals | National Australia vs. Metro Mining |
| Westpac Banking vs. American West Metals | Westpac Banking vs. ACDC Metals | Westpac Banking vs. Medical Developments International | Westpac Banking vs. Apiam Animal Health |
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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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