Correlation Between Westpac Banking and Jupiter Energy

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

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

Diversification Opportunities for Westpac Banking and Jupiter Energy

0.25

Correlation Coefficient

Westpac Banking  Jupiter Energy

Modest diversification

The 3 months correlation between Westpac and Jupiter is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Westpac Banking and Jupiter Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jupiter Energy 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 Jupiter Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jupiter Energy has no effect on the direction of Westpac Banking i.e., Westpac Banking and Jupiter Energy go up and down completely randomly.

Pair Corralation between Westpac Banking and Jupiter Energy

Assuming the 90 days trading horizon Westpac Banking is expected to generate 0.05 times more return on investment than Jupiter Energy. However, Westpac Banking is 18.91 times less risky than Jupiter Energy. It trades about 0.11 of its potential returns per unit of risk. Jupiter Energy is currently generating about -0.02 per unit of risk. If you would invest  10,324  in Westpac Banking on September 25, 2024 and sell it today you would earn a total of  52.00  from holding Westpac Banking or generate 0.5% 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.  Jupiter Energy

Westpac Banking

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Westpac Banking are ranked lower than 6 (%) 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.

Jupiter Energy

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Jupiter Energy are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Jupiter Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Westpac Banking and Jupiter Energy

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

The idea behind Westpac Banking and Jupiter Energy 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.