Correlation Between Westpac Banking and Key Petroleum

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

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

Diversification Opportunities for Westpac Banking and Key Petroleum

-0.46

Correlation Coefficient

Westpac Banking  Key Petroleum

Very good diversification

The 3 months correlation between Westpac and Key is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Westpac Banking and Key Petroleum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Key Petroleum 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 Key Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Key Petroleum has no effect on the direction of Westpac Banking i.e., Westpac Banking and Key Petroleum go up and down completely randomly.

Pair Corralation between Westpac Banking and Key Petroleum

Assuming the 90 days trading horizon Westpac Banking is expected to generate 0.04 times more return on investment than Key Petroleum. However, Westpac Banking is 27.5 times less risky than Key Petroleum. It trades about 0.08 of its potential returns per unit of risk. Key Petroleum is currently generating about -0.07 per unit of risk. If you would invest  10,265  in Westpac Banking on September 24, 2024 and sell it today you would earn a total of  125.00  from holding Westpac Banking or generate 1.22% return on investment over 90 days.

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

Westpac Banking  vs.  Key Petroleum

Westpac Banking

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Westpac Banking are ranked lower than 6 (%) 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.

Key Petroleum

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Key Petroleum has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak 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.

Pair Trading with Westpac Banking and Key Petroleum

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

The idea behind Westpac Banking and Key Petroleum 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 Transaction History module to view history of all your transactions and understand their impact on performance.