Correlation Between Westpac Banking and Insurance Australia

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

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

Diversification Opportunities for Westpac Banking and Insurance Australia

-0.06

Correlation Coefficient

Westpac Banking  Insurance Australia

Good diversification

The 3 months correlation between Westpac and Insurance is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Westpac Banking and Insurance Australia Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Insurance Australia 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 Insurance Australia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Insurance Australia has no effect on the direction of Westpac Banking i.e., Westpac Banking and Insurance Australia go up and down completely randomly.

Pair Corralation between Westpac Banking and Insurance Australia

Assuming the 90 days trading horizon Westpac Banking is expected to generate 0.25 times more return on investment than Insurance Australia. However, Westpac Banking is 3.93 times less risky than Insurance Australia. It trades about 0.02 of its potential returns per unit of risk. Insurance Australia Group is currently generating about -0.01 per unit of risk. If you would invest  10,512  in Westpac Banking on October 3, 2024 and sell it today you would earn a total of  17.00  from holding Westpac Banking or generate 0.16% return on investment over 90 days.

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

Westpac Banking  vs.  Insurance Australia Group

Westpac Banking

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Westpac Banking has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Insurance Australia

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Insurance Australia Group are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, Insurance Australia unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Westpac Banking and Insurance Australia

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

The idea behind Westpac Banking and Insurance Australia Group 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.