Correlation Between Mount Gibson and Westpac Banking

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

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

Diversification Opportunities for Mount Gibson and Westpac Banking

0.35

Correlation Coefficient

Mount Gibson  Westpac Banking

Weak diversification

The 3 months correlation between Mount and Westpac is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Mount Gibson Iron and Westpac Banking in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westpac Banking and Mount Gibson 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 Mount Gibson Iron 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 Mount Gibson i.e., Mount Gibson and Westpac Banking go up and down completely randomly.

Pair Corralation between Mount Gibson and Westpac Banking

Assuming the 90 days trading horizon Mount Gibson Iron is expected to generate 6.05 times more return on investment than Westpac Banking. However, Mount Gibson is 6.05 times more volatile than Westpac Banking. It trades about 0.09 of its potential returns per unit of risk. Westpac Banking is currently generating about 0.07 per unit of risk. If you would invest  28.00  in Mount Gibson Iron on September 4, 2024 and sell it today you would earn a total of  4.00  from holding Mount Gibson Iron or generate 14.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Mount Gibson Iron  vs.  Westpac Banking

Mount Gibson Iron

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Mount Gibson Iron are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Mount Gibson unveiled solid returns over the last few months and may actually be approaching a breakup point.

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 Mount Gibson and Westpac Banking

The main advantage of trading using opposite Mount Gibson and Westpac Banking positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mount Gibson 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 Mount Gibson Iron 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.

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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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.