Correlation Between Sims and Westpac Banking

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

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

Diversification Opportunities for Sims and Westpac Banking

0.41

Correlation Coefficient

Sims  Westpac Banking

Very weak diversification

The 3 months correlation between Sims and Westpac is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Sims and Westpac Banking in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westpac Banking and Sims 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 Sims 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 Sims i.e., Sims and Westpac Banking go up and down completely randomly.

Pair Corralation between Sims and Westpac Banking

Assuming the 90 days trading horizon Sims is expected to generate 1.09 times less return on investment than Westpac Banking. In addition to that, Sims is 5.14 times more volatile than Westpac Banking. It trades about 0.01 of its total potential returns per unit of risk. Westpac Banking is currently generating about 0.05 per unit of volatility. If you would invest  9,477  in Westpac Banking on September 17, 2024 and sell it today you would earn a total of  943.00  from holding Westpac Banking or generate 9.95% return on investment over 90 days.

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

Sims  vs.  Westpac Banking

Sims

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sims are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain primary indicators, Sims unveiled solid returns over the last few months and may actually be approaching a breakup point.

Westpac Banking

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Westpac Banking are ranked lower than 1 (%) 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 Sims and Westpac Banking

The main advantage of trading using opposite Sims and Westpac Banking positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sims 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 Sims 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.