Correlation Between Westpac Banking and Australian Bond

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

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

Diversification Opportunities for Westpac Banking and Australian Bond

-0.35

Correlation Coefficient

Westpac Banking  Australian Bond

Very good diversification

The 3 months correlation between Westpac and Australian is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Westpac Banking and Australian Bond Exchange in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Australian Bond Exchange 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 Australian Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Australian Bond Exchange has no effect on the direction of Westpac Banking i.e., Westpac Banking and Australian Bond go up and down completely randomly.

Pair Corralation between Westpac Banking and Australian Bond

Assuming the 90 days trading horizon Westpac Banking is expected to generate 0.03 times more return on investment than Australian Bond. However, Westpac Banking is 32.1 times less risky than Australian Bond. It trades about 0.1 of its potential returns per unit of risk. Australian Bond Exchange is currently generating about 0.0 per unit of risk. If you would invest  9,654  in Westpac Banking on September 21, 2024 and sell it today you would earn a total of  791.00  from holding Westpac Banking or generate 8.19% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	50.2%
Values	Daily Returns

Westpac Banking  vs.  Australian Bond Exchange

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 current stock price disturbance, may contribute to short-term losses for the investors.

Australian Bond Exchange

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Australian Bond Exchange are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, Australian Bond unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Westpac Banking and Australian Bond

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

The idea behind Westpac Banking and Australian Bond Exchange 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.