Correlation Between Westpac Banking and BHP Group
Can any of the company-specific risk be diversified away by investing in both Westpac Banking and BHP Group 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 Westpac Banking and BHP Group into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Westpac Banking Corp and BHP Group Limited, you can compare the effects of market volatilities on Westpac Banking and BHP Group 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 Westpac Banking with a short position of BHP Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Westpac Banking and BHP Group.
Diversification Opportunities for Westpac Banking and BHP Group
-0.34 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Westpac and BHP is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Westpac Banking Corp and BHP Group Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BHP Group Limited and Westpac Banking 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 Westpac Banking Corp are associated (or correlated) with BHP Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BHP Group Limited has no effect on the direction of Westpac Banking i.e., Westpac Banking and BHP Group go up and down completely randomly.
Pair Corralation between Westpac Banking and BHP Group
Assuming the 90 days trading horizon Westpac Banking Corp is expected to generate 0.83 times more return on investment than BHP Group. However, Westpac Banking Corp is 1.21 times less risky than BHP Group. It trades about 0.09 of its potential returns per unit of risk. BHP Group Limited is currently generating about 0.0 per unit of risk. If you would invest 2,084 in Westpac Banking Corp on August 28, 2024 and sell it today you would earn a total of 1,211 from holding Westpac Banking Corp or generate 58.11% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Westpac Banking Corp vs. BHP Group Limited
Performance |
| Timeline |
| Westpac Banking Corp |
| BHP Group Limited |
Westpac Banking and BHP Group Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Westpac Banking and BHP Group
The main advantage of trading using opposite Westpac Banking and BHP Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Westpac Banking position performs unexpectedly, BHP Group 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 BHP Group will offset losses from the drop in BHP Group's long position.| Westpac Banking vs. Lendlease Group | Westpac Banking vs. Macquarie Bank Limited | Westpac Banking vs. Insignia Financial | Westpac Banking vs. Finexia Financial Group |
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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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.
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