Correlation Between Commonwealth Bank and Australian Bond

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

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

Diversification Opportunities for Commonwealth Bank and Australian Bond

0.53

Correlation Coefficient

Commonwealth Bank  Australian Bond

Very weak diversification

The 3 months correlation between Commonwealth and Australian is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Commonwealth Bank and Australian Bond Exchange in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Australian Bond Exchange and Commonwealth Bank 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 Commonwealth Bank are associated (or correlated) with Australian Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Australian Bond Exchange has no effect on the direction of Commonwealth Bank i.e., Commonwealth Bank and Australian Bond go up and down completely randomly.

Pair Corralation between Commonwealth Bank and Australian Bond

Assuming the 90 days trading horizon Commonwealth Bank is expected to generate 0.24 times more return on investment than Australian Bond. However, Commonwealth Bank is 4.15 times less risky than Australian Bond. It trades about 0.17 of its potential returns per unit of risk. Australian Bond Exchange is currently generating about 0.01 per unit of risk. If you would invest  13,461  in Commonwealth Bank on October 3, 2024 and sell it today you would earn a total of  1,864  from holding Commonwealth Bank or generate 13.85% return on investment over 90 days.

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

Commonwealth Bank  vs.  Australian Bond Exchange

Commonwealth Bank

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Commonwealth Bank are ranked lower than 13 (%) 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.

Australian Bond Exchange

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Australian Bond Exchange are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Australian Bond is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Commonwealth Bank and Australian Bond

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

The idea behind Commonwealth Bank and Australian Bond Exchange 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.