Correlation Between Wells Fargo and Westpac Banking

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

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

Diversification Opportunities for Wells Fargo and Westpac Banking

0.58

Correlation Coefficient

Wells Fargo  Westpac Banking

Very weak diversification

The 3 months correlation between Wells and Westpac is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Wells Fargo and Westpac Banking in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westpac Banking and Wells Fargo 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 Wells Fargo 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 Wells Fargo i.e., Wells Fargo and Westpac Banking go up and down completely randomly.

Pair Corralation between Wells Fargo and Westpac Banking

Assuming the 90 days trading horizon Wells Fargo is expected to generate 3.4 times less return on investment than Westpac Banking. But when comparing it to its historical volatility, Wells Fargo is 4.51 times less risky than Westpac Banking. It trades about 0.01 of its potential returns per unit of risk. Westpac Banking is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  2,025  in Westpac Banking on August 8, 2024 and sell it today you would earn a total of  0.00  from holding Westpac Banking or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.65%
Values	Daily Returns

Wells Fargo  vs.  Westpac Banking

Wells Fargo

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Wells Fargo are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong fundamental indicators, Wells Fargo is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Westpac Banking

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Westpac Banking are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Westpac Banking reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Wells Fargo and Westpac Banking

The main advantage of trading using opposite Wells Fargo and Westpac Banking positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wells Fargo 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 Wells Fargo 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.