Correlation Between Westpac Banking and Regal Investment

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

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

Diversification Opportunities for Westpac Banking and Regal Investment

0.22

Correlation Coefficient

Westpac Banking  Regal Investment

Modest diversification

The 3 months correlation between Westpac and Regal is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Westpac Banking and Regal Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Regal Investment 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 Regal Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Regal Investment has no effect on the direction of Westpac Banking i.e., Westpac Banking and Regal Investment go up and down completely randomly.

Pair Corralation between Westpac Banking and Regal Investment

Assuming the 90 days trading horizon Westpac Banking is expected to generate 8.34 times less return on investment than Regal Investment. But when comparing it to its historical volatility, Westpac Banking is 3.9 times less risky than Regal Investment. It trades about 0.03 of its potential returns per unit of risk. Regal Investment is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  324.00  in Regal Investment on August 31, 2024 and sell it today you would earn a total of  17.00  from holding Regal Investment or generate 5.25% 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.  Regal Investment

Westpac Banking

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Westpac Banking are ranked lower than 2 (%) 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.

Regal Investment

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Regal Investment are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Regal Investment is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Westpac Banking and Regal Investment

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

The idea behind Westpac Banking and Regal Investment 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.