Correlation Between ANZ Group and Westpac Banking

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

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

Diversification Opportunities for ANZ Group and Westpac Banking

-0.44

Correlation Coefficient

ANZ Group  Westpac Banking

Very good diversification

The 3 months correlation between ANZ and Westpac is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding ANZ Group Holdings and Westpac Banking in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westpac Banking and ANZ Group 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 ANZ Group Holdings 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 ANZ Group i.e., ANZ Group and Westpac Banking go up and down completely randomly.

Pair Corralation between ANZ Group and Westpac Banking

Assuming the 90 days trading horizon ANZ Group Holdings is expected to under-perform the Westpac Banking. In addition to that, ANZ Group is 1.27 times more volatile than Westpac Banking. It trades about -0.05 of its total potential returns per unit of risk. Westpac Banking is currently generating about 0.14 per unit of volatility. If you would invest  10,413  in Westpac Banking on December 30, 2024 and sell it today you would earn a total of  211.00  from holding Westpac Banking or generate 2.03% return on investment over 90 days.

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

ANZ Group Holdings  vs.  Westpac Banking

ANZ Group Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days ANZ Group Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, ANZ Group is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Westpac Banking

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Westpac Banking are ranked lower than 11 (%) 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.

Pair Trading with ANZ Group and Westpac Banking

The main advantage of trading using opposite ANZ Group and Westpac Banking positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ANZ Group 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 ANZ Group Holdings 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.