Correlation Between Commonwealth Bank and Core Lithium

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

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

Diversification Opportunities for Commonwealth Bank and Core Lithium

-0.76

Correlation Coefficient

Commonwealth Bank  Core Lithium

Pay attention - limited upside

The 3 months correlation between Commonwealth and Core is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding Commonwealth Bank and Core Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Core Lithium 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 Core Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Core Lithium has no effect on the direction of Commonwealth Bank i.e., Commonwealth Bank and Core Lithium go up and down completely randomly.

Pair Corralation between Commonwealth Bank and Core Lithium

Assuming the 90 days trading horizon Commonwealth Bank is expected to generate 0.19 times more return on investment than Core Lithium. However, Commonwealth Bank is 5.13 times less risky than Core Lithium. It trades about 0.14 of its potential returns per unit of risk. Core Lithium is currently generating about 0.0 per unit of risk. If you would invest  14,304  in Commonwealth Bank on September 17, 2024 and sell it today you would earn a total of  1,517  from holding Commonwealth Bank or generate 10.61% return on investment over 90 days.

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

Commonwealth Bank  vs.  Core Lithium

Commonwealth Bank

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Commonwealth Bank are ranked lower than 10 (%) 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 January 2025.

Core Lithium

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Core Lithium has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Core Lithium 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 Core Lithium

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

The idea behind Commonwealth Bank and Core Lithium 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.