Correlation Between NAT BANK and Westpac Banking

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

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

Diversification Opportunities for NAT BANK and Westpac Banking

0.0

Correlation Coefficient

NAT BANK  Westpac Banking

Pay attention - limited upside

The 3 months correlation between NAT and Westpac is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding NAT BANK CPS and Westpac Banking Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westpac Banking Corp and NAT BANK 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 NAT BANK CPS 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 Corp has no effect on the direction of NAT BANK i.e., NAT BANK and Westpac Banking go up and down completely randomly.

Pair Corralation between NAT BANK and Westpac Banking

If you would invest (100.00) in Westpac Banking Corp on December 20, 2024 and sell it today you would earn a total of  100.00  from holding Westpac Banking Corp or generate -100.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

NAT BANK CPS  vs.  Westpac Banking Corp

NAT BANK CPS

Risk-Adjusted Performance

Very Weak

Over the last 90 days NAT BANK CPS has generated negative risk-adjusted returns adding no value to fund investors. Despite somewhat strong basic indicators, NAT BANK is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Westpac Banking Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Westpac Banking Corp has generated negative risk-adjusted returns adding no value to fund investors. In spite of rather sound basic indicators, Westpac Banking is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with NAT BANK and Westpac Banking

The main advantage of trading using opposite NAT BANK and Westpac Banking positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NAT BANK 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 NAT BANK CPS and Westpac Banking Corp 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.