Correlation Between Westpac Banking and Southern Cross

Can any of the company-specific risk be diversified away by investing in both Westpac Banking and Southern Cross 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 Southern Cross 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 Southern Cross Media, you can compare the effects of market volatilities on Westpac Banking and Southern Cross 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 Southern Cross. Check out your portfolio center. Please also check ongoing floating volatility patterns of Westpac Banking and Southern Cross.

Diversification Opportunities for Westpac Banking and Southern Cross

0.66

Correlation Coefficient

Westpac Banking  Southern Cross

Poor diversification

The 3 months correlation between Westpac and Southern is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Westpac Banking Corp and Southern Cross Media in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern Cross Media 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 Southern Cross. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southern Cross Media has no effect on the direction of Westpac Banking i.e., Westpac Banking and Southern Cross go up and down completely randomly.

Pair Corralation between Westpac Banking and Southern Cross

Assuming the 90 days trading horizon Westpac Banking is expected to generate 4.26 times less return on investment than Southern Cross. But when comparing it to its historical volatility, Westpac Banking Corp is 3.49 times less risky than Southern Cross. It trades about 0.11 of its potential returns per unit of risk. Southern Cross Media is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  51.00  in Southern Cross Media on October 6, 2024 and sell it today you would earn a total of  10.00  from holding Southern Cross Media or generate 19.61% return on investment over 90 days.

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

Westpac Banking Corp  vs.  Southern Cross Media

Westpac Banking Corp

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Westpac Banking Corp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain fundamental indicators, Westpac Banking may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Southern Cross Media

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Southern Cross Media are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain essential indicators, Southern Cross unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Westpac Banking and Southern Cross

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

The idea behind Westpac Banking Corp and Southern Cross Media 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.

Check out your portfolio center.

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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.