Correlation Between Westpac Banking and Ridley
Can any of the company-specific risk be diversified away by investing in both Westpac Banking and Ridley 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 Ridley 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 Ridley, you can compare the effects of market volatilities on Westpac Banking and Ridley 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 Ridley. Check out your portfolio center. Please also check ongoing floating volatility patterns of Westpac Banking and Ridley.
Diversification Opportunities for Westpac Banking and Ridley
0.29 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Westpac and Ridley is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Westpac Banking Corp and Ridley in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ridley 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 Ridley. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ridley has no effect on the direction of Westpac Banking i.e., Westpac Banking and Ridley go up and down completely randomly.
Pair Corralation between Westpac Banking and Ridley
Assuming the 90 days trading horizon Westpac Banking Corp is expected to under-perform the Ridley. But the preferred stock apears to be less risky and, when comparing its historical volatility, Westpac Banking Corp is 5.96 times less risky than Ridley. The preferred stock trades about -0.24 of its potential returns per unit of risk. The Ridley is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest 258.00 in Ridley on September 4, 2024 and sell it today you would earn a total of 16.00 from holding Ridley or generate 6.2% 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. Ridley
Performance |
| Timeline |
| Westpac Banking Corp |
| Ridley |
Westpac Banking and Ridley Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Westpac Banking and Ridley
The main advantage of trading using opposite Westpac Banking and Ridley positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Westpac Banking position performs unexpectedly, Ridley 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 Ridley will offset losses from the drop in Ridley'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 |
| Ridley vs. BKI Investment | Ridley vs. Bell Financial Group | Ridley vs. BSP Financial Group | Ridley vs. Hudson Investment Group |
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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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