Correlation Between Westpac Banking and Nufarm Finance

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

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

Diversification Opportunities for Westpac Banking and Nufarm Finance

0.62

Correlation Coefficient

Westpac Banking  Nufarm Finance

Poor diversification

The 3 months correlation between Westpac and Nufarm is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Westpac Banking and Nufarm Finance NZ in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nufarm Finance NZ 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 Nufarm Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nufarm Finance NZ has no effect on the direction of Westpac Banking i.e., Westpac Banking and Nufarm Finance go up and down completely randomly.

Pair Corralation between Westpac Banking and Nufarm Finance

Assuming the 90 days trading horizon Westpac Banking is expected to generate 2.76 times less return on investment than Nufarm Finance. But when comparing it to its historical volatility, Westpac Banking is 1.96 times less risky than Nufarm Finance. It trades about 0.08 of its potential returns per unit of risk. Nufarm Finance NZ is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  8,752  in Nufarm Finance NZ on September 2, 2024 and sell it today you would earn a total of  598.00  from holding Nufarm Finance NZ or generate 6.83% return on investment over 90 days.

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

Westpac Banking  vs.  Nufarm Finance NZ

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 current stock price disturbance, may contribute to short-term losses for the investors.

Nufarm Finance NZ

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nufarm Finance NZ are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Nufarm Finance may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Westpac Banking and Nufarm Finance

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

The idea behind Westpac Banking and Nufarm Finance NZ 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.