Correlation Between Rea and Westpac Banking
Can any of the company-specific risk be diversified away by investing in both Rea 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 Rea and Westpac Banking into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Rea Group and Westpac Banking, you can compare the effects of market volatilities on Rea 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 Rea with a short position of Westpac Banking. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rea and Westpac Banking.
Diversification Opportunities for Rea and Westpac Banking
0.0 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Rea and Westpac is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Rea Group and Westpac Banking in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westpac Banking and Rea 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 Rea 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 Rea i.e., Rea and Westpac Banking go up and down completely randomly.
Pair Corralation between Rea and Westpac Banking
Assuming the 90 days trading horizon Rea Group is expected to generate 7.33 times more return on investment than Westpac Banking. However, Rea is 7.33 times more volatile than Westpac Banking. It trades about 0.1 of its potential returns per unit of risk. Westpac Banking is currently generating about 0.06 per unit of risk. If you would invest 11,850 in Rea Group on September 4, 2024 and sell it today you would earn a total of 13,154 from holding Rea Group or generate 111.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Flat |
| Strength | Insignificant |
| Accuracy | 99.8% |
| Values | Daily Returns |
Rea Group vs. Westpac Banking
Performance |
| Timeline |
| Rea Group |
| Westpac Banking |
Rea and Westpac Banking Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Rea and Westpac Banking
The main advantage of trading using opposite Rea and Westpac Banking positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rea 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.The idea behind Rea Group and Westpac Banking pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| Westpac Banking vs. Prodigy Gold NL | Westpac Banking vs. Enegex NL | Westpac Banking vs. Pointsbet Holdings | Westpac Banking vs. Cardno |
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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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