Correlation Between Westpac Banking and Ecofibre
Can any of the company-specific risk be diversified away by investing in both Westpac Banking and Ecofibre 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 Ecofibre into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Westpac Banking and Ecofibre, you can compare the effects of market volatilities on Westpac Banking and Ecofibre 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 Ecofibre. Check out your portfolio center. Please also check ongoing floating volatility patterns of Westpac Banking and Ecofibre.
Diversification Opportunities for Westpac Banking and Ecofibre
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Westpac and Ecofibre is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Westpac Banking and Ecofibre in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ecofibre 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 are associated (or correlated) with Ecofibre. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ecofibre has no effect on the direction of Westpac Banking i.e., Westpac Banking and Ecofibre go up and down completely randomly.
Pair Corralation between Westpac Banking and Ecofibre
Assuming the 90 days trading horizon Westpac Banking is expected to generate 0.09 times more return on investment than Ecofibre. However, Westpac Banking is 11.36 times less risky than Ecofibre. It trades about -0.04 of its potential returns per unit of risk. Ecofibre is currently generating about -0.3 per unit of risk. If you would invest 10,722 in Westpac Banking on September 1, 2024 and sell it today you would lose (31.00) from holding Westpac Banking or give up 0.29% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.65% |
| Values | Daily Returns |
Westpac Banking vs. Ecofibre
Performance |
| Timeline |
| Westpac Banking |
| Ecofibre |
Westpac Banking and Ecofibre Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Westpac Banking and Ecofibre
The main advantage of trading using opposite Westpac Banking and Ecofibre positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Westpac Banking position performs unexpectedly, Ecofibre 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 Ecofibre will offset losses from the drop in Ecofibre's long position.| Westpac Banking vs. Ras Technology Holdings | Westpac Banking vs. Beston Global Food | Westpac Banking vs. Retail Food Group | Westpac Banking vs. TTG Fintech |
| Ecofibre vs. Credit Clear | Ecofibre vs. Lendlease Group | Ecofibre vs. Finexia Financial Group | Ecofibre vs. Westpac Banking |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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