Correlation Between Westpac Banking and Australian Dairy
Can any of the company-specific risk be diversified away by investing in both Westpac Banking and Australian Dairy 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 Australian Dairy 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 Australian Dairy Farms, you can compare the effects of market volatilities on Westpac Banking and Australian Dairy 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 Australian Dairy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Westpac Banking and Australian Dairy.
Diversification Opportunities for Westpac Banking and Australian Dairy
0.25 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Westpac and Australian is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Westpac Banking Corp and Australian Dairy Farms in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Australian Dairy Farms 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 Australian Dairy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Australian Dairy Farms has no effect on the direction of Westpac Banking i.e., Westpac Banking and Australian Dairy go up and down completely randomly.
Pair Corralation between Westpac Banking and Australian Dairy
Assuming the 90 days trading horizon Westpac Banking Corp is expected to under-perform the Australian Dairy. But the preferred stock apears to be less risky and, when comparing its historical volatility, Westpac Banking Corp is 42.88 times less risky than Australian Dairy. The preferred stock trades about -0.24 of its potential returns per unit of risk. The Australian Dairy Farms is currently generating about 0.39 of returns per unit of risk over similar time horizon. If you would invest 2.30 in Australian Dairy Farms on September 4, 2024 and sell it today you would earn a total of 2.20 from holding Australian Dairy Farms or generate 95.65% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Westpac Banking Corp vs. Australian Dairy Farms
Performance |
| Timeline |
| Westpac Banking Corp |
| Australian Dairy Farms |
Westpac Banking and Australian Dairy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Westpac Banking and Australian Dairy
The main advantage of trading using opposite Westpac Banking and Australian Dairy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Westpac Banking position performs unexpectedly, Australian Dairy 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 Australian Dairy will offset losses from the drop in Australian Dairy's long position.| Westpac Banking vs. The Environmental Group | Westpac Banking vs. G8 Education | Westpac Banking vs. Aurelia Metals | Westpac Banking vs. Legacy Iron Ore |
| Australian Dairy vs. Audio Pixels Holdings | Australian Dairy vs. Iodm | Australian Dairy vs. Nsx | Australian Dairy vs. TTG Fintech |
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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..
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