Correlation Between Wesfarmers and Aussie Broadband
Can any of the company-specific risk be diversified away by investing in both Wesfarmers and Aussie Broadband 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 Wesfarmers and Aussie Broadband into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Wesfarmers and Aussie Broadband, you can compare the effects of market volatilities on Wesfarmers and Aussie Broadband 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 Wesfarmers with a short position of Aussie Broadband. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wesfarmers and Aussie Broadband.
Diversification Opportunities for Wesfarmers and Aussie Broadband
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Wesfarmers and Aussie is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Wesfarmers and Aussie Broadband in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aussie Broadband and Wesfarmers 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 Wesfarmers are associated (or correlated) with Aussie Broadband. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aussie Broadband has no effect on the direction of Wesfarmers i.e., Wesfarmers and Aussie Broadband go up and down completely randomly.
Pair Corralation between Wesfarmers and Aussie Broadband
Assuming the 90 days trading horizon Wesfarmers is expected to generate 0.46 times more return on investment than Aussie Broadband. However, Wesfarmers is 2.17 times less risky than Aussie Broadband. It trades about 0.09 of its potential returns per unit of risk. Aussie Broadband is currently generating about 0.03 per unit of risk. If you would invest 4,941 in Wesfarmers on November 27, 2024 and sell it today you would earn a total of 2,747 from holding Wesfarmers or generate 55.6% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Wesfarmers vs. Aussie Broadband
Performance |
| Timeline |
| Wesfarmers |
| Aussie Broadband |
Wesfarmers and Aussie Broadband Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Wesfarmers and Aussie Broadband
The main advantage of trading using opposite Wesfarmers and Aussie Broadband positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wesfarmers position performs unexpectedly, Aussie Broadband 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 Aussie Broadband will offset losses from the drop in Aussie Broadband's long position.| Wesfarmers vs. Diversified United Investment | Wesfarmers vs. Mayfield Childcare | Wesfarmers vs. Sports Entertainment Group | Wesfarmers vs. BKI Investment |
| Aussie Broadband vs. Cleanaway Waste Management | Aussie Broadband vs. Aurelia Metals | Aussie Broadband vs. K2 Asset Management | Aussie Broadband vs. Centrex Metals |
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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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