Correlation Between Aristocrat Leisure and Westpac Banking

Can any of the company-specific risk be diversified away by investing in both Aristocrat Leisure and Westpac Banking 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 Aristocrat Leisure and Westpac Banking into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Aristocrat Leisure and Westpac Banking, you can compare the effects of market volatilities on Aristocrat Leisure and Westpac Banking 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 Aristocrat Leisure with a short position of Westpac Banking. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aristocrat Leisure and Westpac Banking.

Diversification Opportunities for Aristocrat Leisure and Westpac Banking

0.42

Correlation Coefficient

Aristocrat Leisure  Westpac Banking

Very weak diversification

The 3 months correlation between Aristocrat and Westpac is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Aristocrat Leisure and Westpac Banking in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westpac Banking and Aristocrat Leisure 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 Aristocrat Leisure are associated (or correlated) with Westpac Banking. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westpac Banking has no effect on the direction of Aristocrat Leisure i.e., Aristocrat Leisure and Westpac Banking go up and down completely randomly.

Pair Corralation between Aristocrat Leisure and Westpac Banking

Assuming the 90 days trading horizon Aristocrat Leisure is expected to generate 2.65 times more return on investment than Westpac Banking. However, Aristocrat Leisure is 2.65 times more volatile than Westpac Banking. It trades about 0.29 of its potential returns per unit of risk. Westpac Banking is currently generating about 0.11 per unit of risk. If you would invest  5,421  in Aristocrat Leisure on September 3, 2024 and sell it today you would earn a total of  1,398  from holding Aristocrat Leisure or generate 25.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Aristocrat Leisure  vs.  Westpac Banking

Aristocrat Leisure

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Aristocrat Leisure are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak essential indicators, Aristocrat Leisure unveiled solid returns over the last few months and may actually be approaching a breakup point.

Westpac Banking

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Westpac Banking are ranked lower than 8 (%) 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 current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Aristocrat Leisure and Westpac Banking

The main advantage of trading using opposite Aristocrat Leisure and Westpac Banking positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aristocrat Leisure position performs unexpectedly, Westpac Banking 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 Westpac Banking will offset losses from the drop in Westpac Banking's long position.

The idea behind Aristocrat Leisure and Westpac Banking 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.