Correlation Between Westpac Banking and Fortescue

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

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

Diversification Opportunities for Westpac Banking and Fortescue

0.37

Correlation Coefficient

Westpac Banking  Fortescue

Weak diversification

The 3 months correlation between Westpac and Fortescue is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Westpac Banking Corp and Fortescue in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fortescue and Westpac Banking 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 Westpac Banking Corp are associated (or correlated) with Fortescue. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fortescue has no effect on the direction of Westpac Banking i.e., Westpac Banking and Fortescue go up and down completely randomly.

Pair Corralation between Westpac Banking and Fortescue

Assuming the 90 days trading horizon Westpac Banking Corp is expected to generate 0.56 times more return on investment than Fortescue. However, Westpac Banking Corp is 1.77 times less risky than Fortescue. It trades about -0.05 of its potential returns per unit of risk. Fortescue is currently generating about -0.07 per unit of risk. If you would invest  3,327  in Westpac Banking Corp on December 1, 2024 and sell it today you would lose (146.00) from holding Westpac Banking Corp or give up 4.39% of portfolio value over 90 days.

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

Westpac Banking Corp  vs.  Fortescue

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 investors with long positions. In spite of comparatively stable fundamental indicators, Westpac Banking is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Fortescue

Risk-Adjusted Performance

Very Weak

Over the last 90 days Fortescue has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Westpac Banking and Fortescue

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

The idea behind Westpac Banking Corp and Fortescue 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.