Correlation Between New Residential and Commonwealth Bank

Can any of the company-specific risk be diversified away by investing in both New Residential and Commonwealth Bank 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 New Residential and Commonwealth Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between New Residential Investment and Commonwealth Bank of, you can compare the effects of market volatilities on New Residential and Commonwealth Bank 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 New Residential with a short position of Commonwealth Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of New Residential and Commonwealth Bank.

Diversification Opportunities for New Residential and Commonwealth Bank

0.82

Correlation Coefficient

New Residential  Commonwealth Bank

Very poor diversification

The 3 months correlation between New and Commonwealth is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding New Residential Investment and Commonwealth Bank of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Commonwealth Bank and New Residential 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 New Residential Investment are associated (or correlated) with Commonwealth Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Commonwealth Bank has no effect on the direction of New Residential i.e., New Residential and Commonwealth Bank go up and down completely randomly.

Pair Corralation between New Residential and Commonwealth Bank

Assuming the 90 days trading horizon New Residential Investment is expected to generate 0.99 times more return on investment than Commonwealth Bank. However, New Residential Investment is 1.01 times less risky than Commonwealth Bank. It trades about 0.08 of its potential returns per unit of risk. Commonwealth Bank of is currently generating about 0.07 per unit of risk. If you would invest  668.00  in New Residential Investment on October 11, 2024 and sell it today you would earn a total of  392.00  from holding New Residential Investment or generate 58.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.8%
Values	Daily Returns

New Residential Investment  vs.  Commonwealth Bank of

New Residential Inve

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in New Residential Investment are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, New Residential may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Commonwealth Bank

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Commonwealth Bank of are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Commonwealth Bank reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with New Residential and Commonwealth Bank

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

The idea behind New Residential Investment and Commonwealth Bank of 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.