Correlation Between Westpac Banking and Aeon Metals

Can any of the company-specific risk be diversified away by investing in both Westpac Banking and Aeon 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 Aeon 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 Aeon Metals, you can compare the effects of market volatilities on Westpac Banking and Aeon 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 Aeon Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Westpac Banking and Aeon Metals.

Diversification Opportunities for Westpac Banking and Aeon Metals

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Correlation Coefficient

Westpac Banking  Aeon Metals

Pay attention - limited upside

The 3 months correlation between Westpac and Aeon is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Westpac Banking and Aeon Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aeon Metals 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 Aeon Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aeon Metals has no effect on the direction of Westpac Banking i.e., Westpac Banking and Aeon Metals go up and down completely randomly.

Pair Corralation between Westpac Banking and Aeon Metals

Assuming the 90 days trading horizon Westpac Banking is expected to generate 2.65 times less return on investment than Aeon Metals. But when comparing it to its historical volatility, Westpac Banking is 25.2 times less risky than Aeon Metals. It trades about 0.11 of its potential returns per unit of risk. Aeon Metals is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1.00  in Aeon Metals on October 3, 2024 and sell it today you would lose (0.50) from holding Aeon Metals or give up 50.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	95.9%
Values	Daily Returns

Westpac Banking  vs.  Aeon Metals

Westpac Banking

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Westpac Banking are ranked lower than 1 (%) 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 current stock price disturbance, may contribute to short-term losses for the investors.

Aeon Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aeon Metals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable essential indicators, Aeon 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 Aeon Metals

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

The idea behind Westpac Banking and Aeon Metals 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.