Correlation Between Commonwealth Bank and Brambles

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

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

Diversification Opportunities for Commonwealth Bank and Brambles

0.69

Correlation Coefficient

Commonwealth Bank  Brambles

Poor diversification

The 3 months correlation between Commonwealth and Brambles is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Commonwealth Bank and Brambles in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brambles 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 Brambles. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brambles has no effect on the direction of Commonwealth Bank i.e., Commonwealth Bank and Brambles go up and down completely randomly.

Pair Corralation between Commonwealth Bank and Brambles

Assuming the 90 days trading horizon Commonwealth Bank is expected to generate 1.36 times more return on investment than Brambles. However, Commonwealth Bank is 1.36 times more volatile than Brambles. It trades about 0.12 of its potential returns per unit of risk. Brambles is currently generating about 0.05 per unit of risk. If you would invest  14,178  in Commonwealth Bank on October 23, 2024 and sell it today you would earn a total of  1,328  from holding Commonwealth Bank or generate 9.37% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.39%
Values	Daily Returns

Commonwealth Bank  vs.  Brambles

Commonwealth Bank

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Commonwealth Bank are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Commonwealth Bank may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Brambles

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Brambles are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental drivers, Brambles 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 Brambles

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

The idea behind Commonwealth Bank and Brambles 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.