Correlation Between Legacy Iron and Westpac Banking

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

By analyzing existing cross correlation between Legacy Iron Ore and Westpac Banking, you can compare the effects of market volatilities on Legacy Iron and Westpac Banking 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 Legacy Iron with a short position of Westpac Banking. Check out your portfolio center. Please also check ongoing floating volatility patterns of Legacy Iron and Westpac Banking.

Diversification Opportunities for Legacy Iron and Westpac Banking

-0.25

Correlation Coefficient

Legacy Iron  Westpac Banking

Very good diversification

The 3 months correlation between Legacy and Westpac is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Legacy Iron Ore and Westpac Banking in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westpac Banking and Legacy Iron 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 Legacy Iron Ore are associated (or correlated) with Westpac Banking. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westpac Banking has no effect on the direction of Legacy Iron i.e., Legacy Iron and Westpac Banking go up and down completely randomly.

Pair Corralation between Legacy Iron and Westpac Banking

Assuming the 90 days trading horizon Legacy Iron Ore is expected to under-perform the Westpac Banking. In addition to that, Legacy Iron is 6.24 times more volatile than Westpac Banking. It trades about -0.07 of its total potential returns per unit of risk. Westpac Banking is currently generating about 0.07 per unit of volatility. If you would invest  10,423  in Westpac Banking on September 4, 2024 and sell it today you would earn a total of  226.00  from holding Westpac Banking or generate 2.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

Legacy Iron Ore  vs.  Westpac Banking

Legacy Iron Ore

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Legacy Iron Ore has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Westpac Banking

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Westpac Banking are ranked lower than 5 (%) 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.

Pair Trading with Legacy Iron and Westpac Banking

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

The idea behind Legacy Iron Ore and Westpac Banking 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.