Correlation Between Westpac Banking and Adriatic Metals

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

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

Diversification Opportunities for Westpac Banking and Adriatic Metals

0.21

Correlation Coefficient

Westpac Banking  Adriatic Metals

Modest diversification

The 3 months correlation between Westpac and Adriatic is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Westpac Banking and Adriatic Metals Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adriatic Metals Plc 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 are associated (or correlated) with Adriatic Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adriatic Metals Plc has no effect on the direction of Westpac Banking i.e., Westpac Banking and Adriatic Metals go up and down completely randomly.

Pair Corralation between Westpac Banking and Adriatic Metals

Assuming the 90 days trading horizon Westpac Banking is expected to generate 7.42 times less return on investment than Adriatic Metals. But when comparing it to its historical volatility, Westpac Banking is 10.5 times less risky than Adriatic Metals. It trades about 0.05 of its potential returns per unit of risk. Adriatic Metals Plc is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  417.00  in Adriatic Metals Plc on November 29, 2024 and sell it today you would earn a total of  15.00  from holding Adriatic Metals Plc or generate 3.6% return on investment over 90 days.

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

Westpac Banking  vs.  Adriatic Metals Plc

Westpac Banking

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Westpac Banking are ranked lower than 4 (%) 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.

Adriatic Metals Plc

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Adriatic Metals Plc are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Adriatic Metals is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Westpac Banking and Adriatic Metals

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

The idea behind Westpac Banking and Adriatic Metals Plc 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.