Correlation Between Commonwealth Bank and Brickworks

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

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

Diversification Opportunities for Commonwealth Bank and Brickworks

-0.78

Correlation Coefficient

Commonwealth Bank  Brickworks

Pay attention - limited upside

The 3 months correlation between Commonwealth and Brickworks is -0.78. Overlapping area represents the amount of risk that can be diversified away by holding Commonwealth Bank and Brickworks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brickworks 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 Brickworks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brickworks has no effect on the direction of Commonwealth Bank i.e., Commonwealth Bank and Brickworks go up and down completely randomly.

Pair Corralation between Commonwealth Bank and Brickworks

Assuming the 90 days trading horizon Commonwealth Bank is expected to under-perform the Brickworks. In addition to that, Commonwealth Bank is 1.85 times more volatile than Brickworks. It trades about -0.11 of its total potential returns per unit of risk. Brickworks is currently generating about -0.04 per unit of volatility. If you would invest  2,600  in Brickworks on September 22, 2024 and sell it today you would lose (20.00) from holding Brickworks or give up 0.77% of portfolio value over 90 days.

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

Commonwealth Bank  vs.  Brickworks

Commonwealth Bank

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Commonwealth Bank are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Commonwealth Bank is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Brickworks

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Brickworks has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Brickworks is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Commonwealth Bank and Brickworks

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

The idea behind Commonwealth Bank and Brickworks 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.