Correlation Between Commonwealth Bank and Air New

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

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

Diversification Opportunities for Commonwealth Bank and Air New

0.49

Correlation Coefficient

Commonwealth Bank  Air New

Very weak diversification

The 3 months correlation between Commonwealth and Air is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Commonwealth Bank and Air New Zealand in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air New Zealand 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 Air New. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air New Zealand has no effect on the direction of Commonwealth Bank i.e., Commonwealth Bank and Air New go up and down completely randomly.

Pair Corralation between Commonwealth Bank and Air New

Assuming the 90 days trading horizon Commonwealth Bank is expected to under-perform the Air New. In addition to that, Commonwealth Bank is 1.04 times more volatile than Air New Zealand. It trades about -0.07 of its total potential returns per unit of risk. Air New Zealand is currently generating about 0.29 per unit of volatility. If you would invest  51.00  in Air New Zealand on October 5, 2024 and sell it today you would earn a total of  4.00  from holding Air New Zealand or generate 7.84% 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.  Air New Zealand

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.

Air New Zealand

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Air New Zealand are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Air New may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Commonwealth Bank and Air New

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

The idea behind Commonwealth Bank and Air New Zealand 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.