Correlation Between Brainchip Holdings and Commonwealth Bank

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

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

Diversification Opportunities for Brainchip Holdings and Commonwealth Bank

0.13

Correlation Coefficient

Brainchip Holdings  Commonwealth Bank

Average diversification

The 3 months correlation between Brainchip and Commonwealth is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Brainchip Holdings and Commonwealth Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Commonwealth Bank and Brainchip Holdings 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 Brainchip Holdings 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 Brainchip Holdings i.e., Brainchip Holdings and Commonwealth Bank go up and down completely randomly.

Pair Corralation between Brainchip Holdings and Commonwealth Bank

Assuming the 90 days trading horizon Brainchip Holdings is expected to generate 4.92 times more return on investment than Commonwealth Bank. However, Brainchip Holdings is 4.92 times more volatile than Commonwealth Bank. It trades about 0.22 of its potential returns per unit of risk. Commonwealth Bank is currently generating about 0.02 per unit of risk. If you would invest  24.00  in Brainchip Holdings on September 27, 2024 and sell it today you would earn a total of  8.00  from holding Brainchip Holdings or generate 33.33% return on investment over 90 days.

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

Brainchip Holdings  vs.  Commonwealth Bank

Brainchip Holdings

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Brainchip Holdings are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Brainchip Holdings unveiled solid returns over the last few months and may actually be approaching a breakup point.

Commonwealth Bank

Risk-Adjusted Performance

14 of 100

Good

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

Pair Trading with Brainchip Holdings and Commonwealth Bank

The main advantage of trading using opposite Brainchip Holdings and Commonwealth Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Brainchip Holdings 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 Brainchip Holdings and Commonwealth Bank 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.