Correlation Between Westpac Banking and PM Capital

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Can any of the company-specific risk be diversified away by investing in both Westpac Banking and PM Capital 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 PM Capital into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Westpac Banking and PM Capital Global, you can compare the effects of market volatilities on Westpac Banking and PM Capital 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 PM Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Westpac Banking and PM Capital.

Diversification Opportunities for Westpac Banking and PM Capital

0.78
  Correlation Coefficient

Poor diversification

The 3 months correlation between Westpac and PGF is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Westpac Banking and PM Capital Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PM Capital Global 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 PM Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PM Capital Global has no effect on the direction of Westpac Banking i.e., Westpac Banking and PM Capital go up and down completely randomly.

Pair Corralation between Westpac Banking and PM Capital

Assuming the 90 days trading horizon Westpac Banking is expected to generate 0.29 times more return on investment than PM Capital. However, Westpac Banking is 3.46 times less risky than PM Capital. It trades about -0.19 of its potential returns per unit of risk. PM Capital Global is currently generating about -0.13 per unit of risk. If you would invest  10,749  in Westpac Banking on August 25, 2024 and sell it today you would lose (169.00) from holding Westpac Banking or give up 1.57% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Westpac Banking  vs.  PM Capital Global

 Performance 
       Timeline  
Westpac Banking 

Risk-Adjusted Performance

5 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Westpac Banking are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Westpac Banking is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.
PM Capital Global 

Risk-Adjusted Performance

4 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in PM Capital Global are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, PM Capital is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Westpac Banking and PM Capital Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Westpac Banking and PM Capital

The main advantage of trading using opposite Westpac Banking and PM Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Westpac Banking position performs unexpectedly, PM Capital 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 PM Capital will offset losses from the drop in PM Capital's long position.
The idea behind Westpac Banking and PM Capital Global 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.
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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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.

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