Correlation Between Westpac Banking and Pinnacle Investment

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

Diversification Opportunities for Westpac Banking and Pinnacle Investment

-0.05

Correlation Coefficient

Westpac Banking  Pinnacle Investment

Good diversification

The 3 months correlation between Westpac and Pinnacle is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Westpac Banking and Pinnacle Investment Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pinnacle 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 Pinnacle Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pinnacle Investment has no effect on the direction of Westpac Banking i.e., Westpac Banking and Pinnacle Investment go up and down completely randomly.

Pair Corralation between Westpac Banking and Pinnacle Investment

Assuming the 90 days trading horizon Westpac Banking is expected to generate 7.23 times less return on investment than Pinnacle Investment. But when comparing it to its historical volatility, Westpac Banking is 6.15 times less risky than Pinnacle Investment. It trades about 0.1 of its potential returns per unit of risk. Pinnacle Investment Management is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  803.00  in Pinnacle Investment Management on September 17, 2024 and sell it today you would earn a total of  1,548  from holding Pinnacle Investment Management or generate 192.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	49.6%
Values	Daily Returns

Westpac Banking  vs.  Pinnacle Investment Management

Westpac Banking

Risk-Adjusted Performance

0 of 100

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.

Pinnacle Investment

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pinnacle Investment Management are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain forward indicators, Pinnacle Investment unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Westpac Banking and Pinnacle Investment

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

The idea behind Westpac Banking and Pinnacle Investment Management 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.